Normally, debt forgiven is income to the debtor. The Further Consolidated Appropriations Act, 2020, signed on December 20, 2019, extends the Qualified Principal Residence Indebtedness (QRPI) exclusion. This allows homeowners after a foreclosure, loan modification, short sale, or deed in lieu of foreclosure to exclude the forgiven amount from their income for tax purposes.
In such circumstances, the homeowner will receive a 1099-C (Cancellation of Debt) form from their bank. If the QPRI exclusion applies, the forgiven amount is not considered income. This will apply to debts forgiven in tax years 2018 through 2020.