Situation: My wife has student loans from attending university in the UK. We live in the UK and file US taxes jointly (I'm a US citizen so have to file no matter what, she's a green card holder - potentially could get her out of the US tax system, but that's not the point of this post).
The UK student loan system works such that you pay a percentage of your income (typically 9%) over a threshold as loan repayments. If you earn under the threshold, like my wife does, you don't have to repay anything. Interest continues to accrue, but when you reach a certain age (65 in her case), the loan is written off/cancelled. This is very normal, and happens to most loans - only quite high earners actually wind up paying off their loans in full. There's no taxes, no impacts on credit scores, it just goes away.
Two questions:
1. Is this loan write-off taxable as income for our US taxes?
2. If it is taxable, am I correct that this would be "General" category income for Foreign Tax Credit purposes? (we'll have lots of general category foreign tax credits by the time this happens, and from the form 1116 instructions and pub 514, there doesn't seem to be another logical place to put it).
I've tried looking through the IRS website and googling, but there's lots out there about US student loans being forgiven and how taxes work on that, but I've found nothing on UK, or generically "foreign", student loans.
Thanks!
