What is a "discharge of qualified principal residence indebtedness"?

A discharge of qualified principal residence indebtedness happens when a lender cancels or forgives all or part of a mortgage on your main home.

For this exclusion, qualified principal residence indebtedness is generally a mortgage you used to:

• Buy your main home
• Build your main home
• Substantially improve your main home

The debt must be secured by your main home. It can also include a refinanced mortgage, but only up to the balance of the original loan immediately before refinancing.

For more details, see IRS Publication 4681.

2026 Tax Year Note

For tax year 2026, the exclusion for qualified principal residence indebtedness is not currently available unless Congress extends the provision or changes the law. If your mortgage debt was canceled in 2026 or later, review the latest IRS guidance to determine whether another exclusion, such as bankruptcy or insolvency, may apply.

Tax Years 2021 Through 2025

Under the IRS instructions for Form 982, you may qualify for the exclusion for discharge of qualified principal residence indebtedness if:

• The debt was discharged before January 1, 2026, or
• The debt was discharged under a written agreement entered into before January 1, 2026.

When claiming this exclusion on Form 982:

• Check Box 1e for qualified principal residence indebtedness.
• Do not check Box 1e if the discharge occurred in a Title 11 bankruptcy case.
• If the discharge occurred in a Title 11 bankruptcy case, use Box 1a instead.
• If you were insolvent immediately before the debt was canceled (and were not in a Title 11 bankruptcy case), you may elect to use the insolvency exclusion by checking Box 1b instead of Box 1e.

What If More Than One Exclusion Applies?

The IRS requires certain exclusions to be applied before the qualified principal residence indebtedness exclusion.

According to IRS Publication 4681:

• The bankruptcy exclusion takes priority over the qualified principal residence indebtedness exclusion.
• If the debt was canceled in a Title 11 bankruptcy case, you must use the bankruptcy exclusion.
• If you were insolvent immediately before the cancellation of debt, you may choose to apply the insolvency exclusion instead.
• Other applicable exclusions must be considered before using the qualified principal residence indebtedness exclusion.

Because canceled debt can qualify for more than one exclusion, it's important to review your situation carefully before completing Form 982.

How to Enter Form 982 in the Program

To enter Form 982 in the program:

1. Go to Federal.
2. Select Income.
3. Select my forms.
4. Choose Less Common Income.
5. Select Cancellation of Debt (Form 1099-C, Form 982).
6. Select Exclusions (Form 982).

Additional Resources

• IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments
• IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness