{"id":1905,"date":"2019-02-11T11:37:05","date_gmt":"2019-02-11T16:37:05","guid":{"rendered":"https:\/\/www.lendvious.com\/blog\/?p=1905"},"modified":"2019-11-21T02:13:34","modified_gmt":"2019-11-21T07:13:34","slug":"how-borrowing-affects-tax-is-personal-loan-taxable","status":"publish","type":"post","link":"https:\/\/www.lendvious.com\/blog\/blog\/2019\/02\/11\/how-borrowing-affects-tax-is-personal-loan-taxable\/","title":{"rendered":"How Borrowing Affects Tax- Is Personal Loan Taxable?"},"content":{"rendered":"

Are loans taxable? You\u2019re probably wondering how a loan you\u2019re about to take would affect your taxes. But before attempting to understand the tax implications of a loan, answer this basic question. What is a loan? It\u2019s a sum of money that you borrow, and are expected to repay in due course. So, whether it\u2019s a personal loan<\/a> or any other type of loan, you take up the responsibility to repay it. Therefore, although a loan appears to be income, in reality, it\u2019s not. And this is the primary reason why loans are not taxable per se. <\/span><\/p>\n

But, there are exceptions to this rule.<\/span><\/p>\n

When is a loan taxable?<\/h2>\n

For the most part, when you take a personal loan or any other loan, taxes don\u2019t come into play. However, in some situations, it may be treated as income. For instance, if the lender releases you from the liability to repay your loan\u2019s principal or interest, it becomes income. This is called the Cancellation of Debt (COD) income and is taxable. In this case, you need to report the amount to the IRS and pay tax on it. <\/span><\/p>\n

When does COD take place?<\/h3>\n

Debt cancellation may take place when you can no longer afford to repay the borrowed amount. In such a situation, you may negotiate with the lender for debt settlement\/cancellation. In the case of mortgage loans, debt cancellation occurs when there is a foreclosure, repossession, voluntary transfer of property, mortgage modification, or abandonment of property. When such a loan is forgiven or canceled, the lender gives you the form 1099-C to report the canceled debt amount to the IRS.<\/span><\/p>\n

Exceptions to the COD Income Rule<\/h3>\n

There are many circumstances when canceled debt may not be counted as taxable income, including:<\/span><\/p>\n