The National Directory of Certified Public Accountants

Ask A CPA - Cancellation of Debt

Is Cancellation Of Debt From A Primary Residence Taxable?

You are allowed to exclude cancelled debt from gross income if it is qualified principal residence indebtness. Qualified principal residence indebtness is debt incurred in acquiring, constructing, or substantially improving your principal residence and which is secured by your principal residence. It also includes debt secured by your principal residence that refinances debt incurred in acquiring, constructing, or substantially improving your principal residence but only to the extent of such refinanced debt. The maximum exclusion is 2 Million or 1 million if filing separately.

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