 TITLE: Do You Have to Pay Income Taxes on Personal Loans? CONTENT: Is a Forgiven Personal Loan Considered Taxable Income?\n------------------------------------------------------\nAs a borrower, you may need to pay income tax on a portion of a personal loan that's canceled, forgiven or discharged.\nFor example, if you have a $2,500 outstanding balance on a personal loan and the creditor agrees to settle the account for $1,500, then you'll have $1,000 in canceled debt. The canceled debt is considered income, even if part of the canceled debt is made up of fees and interests. The lender will also send you and the IRS a Form 1099-C you can use to help prepare and file your tax return.\nYou could wind up with a similar situation with other types of debt as well. With some federal student loan repayment plans, your remaining student loan debt will be forgiven after you make payments for 20 to 25 years, with the forgiven amount considered taxable income.\nHowever, there are also exceptions. A forgiven personal loan doesn't lead to taxable income if, for example, your debt is discharged during bankruptcy. Or, if you're insolvent (you owe more money than your current assets) when your debt is forgiven, then part or all of the forgiven debt could be excluded from your gross income. Some student loan forgiveness programs also lead to debt forgiveness without tax consequences. END