The Qualified Principal Residence Debt Exclusion – It’s Important
These trying times have had many homeowners searching for ways to reduce taxes. Here is a significant one, particularly if you have had home acquisition debt canceled after 2017. The Qualified Principal Residence Indebtedness Exclusion has been extended — a retroactive change to the Tax Code. Now’s the time for you to look into your previous returns, to see if you qualify for this important exclusion. We’ll go into some of the details.
The QPRI – What it Is
In the past, the IRS has considered loan forgiveness (either all or some of it) to be part of the borrower’s gross income. That means the increase in your income for the specific year the forgiveness was given could be a tax liability for you — you would have to pay tax on that extra money listed as income on your return.
The QPRI was introduced in 2007, in the United States Congress as the Mortgage Forgiveness Debt Relief Act, and was added to the Internal Revenue Code. Originally slated to last three years, it has since been extended and re-extended. It was yet again set to expire on January 1, 2021, but once again was extended.
How the QPRI Works
As mentioned, you may be able to take advantage of the QPRI exclusion, if the debt on your main residence (in most cases, the mortgage) was forgiven from 2018 through 2020. For the tax years 2017 through 2020, you may exclude up to two million, or one million if you and your spouse are filing separately (MFS) — from your gross income. This is as a result of an extension to the program, from 2017 to December 31, 2020. Have a look at your tax returns from 2018 and 2019. If for whatever reason, you did not take advantage of the exclusion, you can retroactively claim it, as an amendment to the appropriate year’s return.
Contact Your Accountant As Soon As Possible
There is some urgency. For your 2018 return, you have until April 15, 2022 to file an amended return, and take advantage of the QPRI exclusion.
If you require any assistance with the QPRI or any other tax-related matter, we would be happy to hear from you. Contact us.