New Federal Legislation Extends Qualified Personal Residence Indebtedness Income Exclusion

By: Thomas E. Shea, Esquire

Originally passed as part of the federal Mortgage Forgiveness Relief Debt Relief Act of 2007, Congress added Section 108(a)(1)(E) was added to the Internal Revenue Code, creating the Qualified Principal Residence Indebtedness (QPRI) exclusion. With this exclusion, if any mortgage debt on a homeowner’s principal residence is forgiven, that homeowner could exclude from their taxable income up to $2 million of that forgiven debt ($1 million for single taxpayer and $2 million for married taxpayers).

Over the years, that exclusion was extended by Congress, eventually through the end of 2017. The exclusion expired at the end of 2017 when Congress failed to extend it again. However, with the passage of the federal Taxpayer Certainty and Disaster Relief Act of 2019, the QPRI exclusion was extended through December 31, 2020, and further was applied retroactively to the 2018 and 2019 tax years.

Without a further extension, the QPRI exclusion was set to expire at the end of 2020. However, as part of the recently passed federal Congressional Appropriations Act of 2021, which also included significant COVID-19 related relief provisions, the QPRI exclusion has been extended again, through 2025. However, the QPRI limits have been reduced from $1,000,000 single/$2 million married to $375,000 single/$750,000 married limits.

For homeowners who received a 1099-C from their lender as part of a workout of the mortgage loan on their primary residence, this extension may provide significant and welcome relief, and we encourage you to consult your tax advisor about this relief provision.

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