Can I exclude some of my canceled mortgage debt from my taxable income?
You can exclude up to $750,000 ($375,000 if married filing separately) of qualified principal residence debt from income if it was discharged before January 1, 2026. Qualified principal residence debt is a mortgage you took out to buy, build, or substantially improve your home (your principal residence). Any debt secured by your home that you use to refinance a mortgage you took out to buy, build, or substantially improve your main home also qualifies, but only up to the amount of the old mortgage principal just before refinancing.
So basically, if the mortgage debt is for your home or home improvements then it qualifies, but any part of the mortgage debt that was used to pay for vacations or cars, or other personal spending, doesn't qualify.
However, if you were insolvent or bankrupt at the time of your mortgage foreclosure, the personal part of the mortgage debt could also be excluded from income under the normal bankruptcy or insolvency rules.
We'll walk you through each possible scenario and calculate the amount that you can exclude from your taxable income.
So basically, if the mortgage debt is for your home or home improvements then it qualifies, but any part of the mortgage debt that was used to pay for vacations or cars, or other personal spending, doesn't qualify.
However, if you were insolvent or bankrupt at the time of your mortgage foreclosure, the personal part of the mortgage debt could also be excluded from income under the normal bankruptcy or insolvency rules.
We'll walk you through each possible scenario and calculate the amount that you can exclude from your taxable income.
