IRS provides tax relief for those with discharged student loans

IRS provides tax relief for those with discharged student loans
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The IRS and Treasury Department on Wednesday released guidance that will allow more people with discharged student loans to receive tax relief.

Under the guidance, certain taxpayers with discharged student loans will not have to report the amount of the loan as gross income on their federal tax returns.

The guidance applies to taxpayers whose federal loans were discharged by the Department of Education because they were attending a school that closed or because they established that "a school’s actions would give rise to a cause of action against the school under applicable state law," the IRS said. The guidance also applies to taxpayers whose private loans were discharged as a result of legal settlements against colleges and certain private lenders.

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The new guidance comes after Treasury and the IRS in recent years have provided similar tax relief to taxpayers who took out loans in order to attend schools owned by Corinthian Colleges Inc. or American Career Institutes Inc. — now-defunct for-profit institutions. Treasury and the IRS said in the new guidance that they determined that it's appropriate to extend that tax relief to people who had taken out loans to finance attendance at other schools as well.

In addition to providing tax relief for borrowers with discharged loans, Treasury and the IRS also said that creditors will not have to file information returns and payee statements for the discharge of any debt that falls within the scope of the guidance.

The guidance is effective for loans discharged in 2016 and later. Taxpayers who are eligible for relief under the guidance are eligible to claim refunds for overpayment of tax.