Understanding Qualified Principal Residence Indebtedness when Home is No Longer Primary Residence

You're on the right track! The key factor for Qualified Principal Residence Indebtedness is indeed when the debt was acquired, not when it was canceled. The IRS focuses on the original purpose of the loan - if you took out the mortgage to buy, build, or substantially improve what was your main home at that time, it qualifies as QPRI. The fact that the property wasn't your main residence at the time of cancellation doesn't disqualify the debt from QPRI treatment. Publication 4681 addresses this specifically. What matters is that the loan was acquisition indebtedness for a principal residence when you took it out. The status at cancellation doesn't change the original qualification of the debt. Make sure you have documentation showing it was your main home when you acquired the mortgage. That's what the IRS will look for if there are any questions.

Just wanted to share my experience - I had almost the exact same situation last year and was super confused about it. I ended up using taxr.ai (https://taxr.ai) to analyze my mortgage documents and loan cancellation paperwork. The tool helped me confirm that my canceled mortgage qualified as QPRI even though I had moved out of the property two years before the cancellation. They have this feature where you can upload your loan docs and cancellation of debt form, and they parse through everything to determine if you meet the QPRI requirements. Saved me hours of research and probably a hefty tax bill since I was able to exclude about $120,000 of canceled debt from my income.

I tried taxr.ai after seeing the recommendation here and it was really helpful for my QPRI situation. I uploaded my mortgage origination documents and foreclosure paperwork, and it confirmed I was eligible for the exclusion even though I had been renting out the property for the last year before foreclosure. The tool gave me a detailed explanation of why the debt still qualified based on its original purpose (it was my primary residence when I took out the loan). It even generated a supplement I could attach to my tax return explaining the circumstances. Definitely worth checking out if you're dealing with this complicated situation.

If you're still having trouble getting a clear answer on your QPRI situation, you might want to try getting someone from the IRS directly. I spent WEEKS trying to get through to a specialist who could help with my discharged debt question. Finally tried Claimyr (https://claimyr.com) after watching their demo video (https://youtu.be/_kiP6q8DX5c) and got connected to an IRS agent in about 25 minutes. The agent confirmed exactly what others are saying here - what matters is that the property was your main home when you took out the mortgage. The IRS guy walked me through exactly how to fill out Form 982 for my situation and told me what supporting documentation to keep with my records. Was way more helpful than I expected!

I have to admit I was totally wrong about Claimyr. After my skeptical comment I decided to try it anyway since I was desperate for answers about my mortgage cancellation situation. Got connected to an IRS specialist in about 40 minutes who confirmed that my discharged mortgage debt still qualified as QPRI even though I had moved out of the house a year before foreclosure. The specialist explained that the determining factor is the status of the home when the loan was originated, not when it was canceled. The call saved me about $85,000 in taxable income I would have reported incorrectly. Sometimes it's worth admitting when you're wrong!

I recently handled a case similar to this for a client. One additional thing to be aware of: if the client refinanced the original acquisition mortgage, the refinanced loan can still qualify as QPRI, but ONLY to the extent that the new loan amount didn't exceed the principal balance of the old loan at the time of refinancing. If they took cash out or rolled other debts into the refi, those portions would not qualify for the QPRI exclusion.

I hit this exact situation back in 2023 and it was a nightmare to figure out. My original home mortgage was from 2018 when it was definitely my primary residence, but by the time the bank forgave $93k in 2023, I had moved out two years earlier. The key form you need is Form 982. Make sure to check the box for "Discharge of qualified principal residence indebtedness" and enter the amount on line 1e. It's confusing because a lot of the tax software doesn't explain this situation clearly.

I faced this exact scenario in 2022 and can confirm your understanding is correct. The timing that matters is when you originally took out the mortgage, not when it was canceled or forgiven. In my case, I had purchased the home in 2019 as my primary residence with a conventional mortgage. Due to job relocation, I moved out in 2021 and started renting it out. When I went through a short sale in 2022, I was worried the $45,000 in forgiven debt wouldn't qualify for QPRI exclusion since it was no longer my main home. However, after consulting with a tax professional and reviewing IRS Publication 4681, it was clear that the debt qualified because the home WAS my principal residence when I acquired the mortgage. The exclusion applied in full. Keep your original loan documents and any evidence showing the property was your main home when you took out the mortgage (utility bills, voter registration, etc.). The IRS may request this documentation to verify the original qualification. Also remember that if you've claimed depreciation on the property while it was a rental, you may need to recapture some of that depreciation, but that's a separate issue from the QPRI exclusion.

I went through this exact situation last year and can add some perspective to what others have shared. My mortgage originated in 2019 when the property was definitely my primary residence, but I had to move for work in 2021. When the lender canceled about $67,000 in debt through a deed-in-lieu in 2023, I was initially panicked thinking I'd owe taxes on the full amount. After working with a tax professional, we confirmed that the debt absolutely qualified for QPRI exclusion. The critical factor is that acquisition indebtedness test - the loan was used to purchase what was my main home at the time of origination. One thing I'd add that hasn't been mentioned: make sure you understand the basis reduction requirements that come with claiming the QPRI exclusion. When you exclude canceled debt from income under QPRI, you generally have to reduce your basis in the property by the amount excluded (though since the property was likely sold/foreclosed, this may not be relevant in your case). Also, keep excellent records. I kept copies of my original loan application, purchase contract, utility bills from when I lived there, and voter registration records from that time period. The IRS never asked for them, but having that documentation gave me peace of mind that I could prove it was my principal residence when I took out the mortgage.