 TITLE: Is Personal Loan Interest Tax-Deductible? CONTENT: Are Personal Loans Taxable Income?\n----------------------------------\nYou usually don't pay income taxes on the proceeds from a personal loan because you need to repay the money. However, if the lender forgives or cancels some of your debt, the portion you don't have to repay may become taxable income.\nFor example, if you're repaying a federal student loan with an income-driven repayment plan, the remainder of your loan may be canceled after 20 to 25 years. Your lender may then send you (and the IRS) a Form 1099-C showing how much debt was canceled, which you'll include in your tax return.\nA similar situation can happen if you settle a debt with a creditor for less than you owe or negotiate a debt reduction. Overall, you may save money, as paying taxes on $1,000 in forgiven debt will be less expensive than paying the entire $1,000. However, you want to be prepared for the tax consequences.\nThere are a few exceptions and exclusions when you don't have to include forgiven or canceled debt in your taxable income. For example, if you qualify for certain federal student loan forgiveness programs, such as the Public Service Loan Forgiveness program, the forgiven amount won't be taxable.\nMore generally, when your debts are canceled or forgiven and you have more liabilities than assets (you're insolvent, in other words), part or all of the forgiven amount may be excluded from your income. Also, your debts that are discharged when you file bankruptcy don't become taxable income. END