Home Mortgage Debt Forgiveness Exclusion Extended

A discharge of indebtedness generally results in the recognition of gross income.  Under the “mortgage forgiveness exclusion” which otherwise applied to debt discharged before January 1, 2014, any discharge associated with “qualified principal residence indebtedness” was excluded from gross income up to $2 million of debt on a joint return.  The debt must have been used to acquire, construct, or substantially improve the taxpayer’s principal residence, or to refinance the debt and must have been secured by the residence.

Under the recent “2014 Tax Increase Prevention Act,” the exclusion will apply for an additional year – to debt discharged before January 1, 2015.