Under pre-OBBBA law, any income resulting from the discharge of student debt on account of death or total disability of the student is excluded from taxable income. This treatment of discharged income due to death or disability is set to expire after December 31, 2025.
OBBBA provides an exclusion from an individual’s gross income for an otherwise includible amount from the discharge of a qualifying loan on account of a student’s death or total and permanent disability.
The discharge of a loan qualifies for the new tax law exclusion if the loan was a:
(1) a student loan (under the IRC Sec 108(f)(2) requirements for student loans) or
(2) a private education loan. For this purpose, a private education loan is defined in section 140(a) of the Consumer Credit Protection Act (15 U.S.C. sec. 1650(a)).
The exclusion from gross income is allowed in respect of a discharge during a taxable year only if the taxpayer includes on the tax return for the year the taxpayer’s Social Security number and, if the taxpayer is married, the Social Security number of the taxpayer’s spouse. For this purpose, the term “Social Security number” has the same meaning as under IRC Sec 24(h)(7), which defines “Social Security number” as a Social Security number issued to an individual by the Social Security Administration, but only if the number is issued before the due date for the individual’s tax return and is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act.
For purposes of the Social Security number requirement for an individual and an individual’s spouse, rules like the marital rules of IRC Sec 32(d) apply.
The new tax law treats the omission of a correct, required Social Security number as a mathematical or clerical error for purposes of IRC Sec 6213.
Effective for taxable years beginning after December 31, 2025