Form 1099-C Mortgage Forgiveness Tax Calculator 2026
Calculate taxable cancellation of debt income from mortgage forgiveness, credit cards, or student loans. Apply Section 108 exclusions: insolvency, bankruptcy, QPRD, and qualified farm debt.
$
Total amount forgiven as shown on Form 1099-C $
FMV of home, cars, bank accounts, investments, retirement $
All debts including the forgiven debt itself %
$0
Taxable COD Income
$80,000
Excluded Amount
$0
Tax on COD Income
Box 1b
Form 982 Box
Section 108 Exclusion Analysis
Understanding Cancelled Debt Income & Exclusions
When a lender cancels $80,000 of your mortgage, the IRS treats that as $80,000 of ordinary income β unless you qualify for an exclusion under IRC Β§108. This calculator applies all relevant Β§108 exclusions in priority order.
Β§108 Exclusion Priority Order
1. Bankruptcy (Title 11) β 100% excluded, reduces tax attributes
2. Insolvency β excluded up to: Total Liabilities β Total Assets (FMV)
3. Qualified Principal Residence Debt β up to $2M, through 2025
4. Qualified Farm Debt β for farmers from qualified lenders
5. Qualified Real Property Business Debt β RE held in trade/business
6. Student Loan (qualifying programs) β certain forgiveness programs
2. Insolvency β excluded up to: Total Liabilities β Total Assets (FMV)
3. Qualified Principal Residence Debt β up to $2M, through 2025
4. Qualified Farm Debt β for farmers from qualified lenders
5. Qualified Real Property Business Debt β RE held in trade/business
6. Student Loan (qualifying programs) β certain forgiveness programs
The insolvency exclusion is calculated on a moment-in-time basis: the instant immediately before the discharge. All assets at FMV and all liabilities (including the debt being cancelled) are included in the calculation.
Sources & References (click to expand)
- IRC Section 108 β Income from Discharge of Indebtedness
- IRS Publication 4681 β Cancelled Debts, Foreclosures, Repossessions & Abandonments
- IRS Form 982 β Reduction of Tax Attributes Due to Discharge of Indebtedness
- IRS Tax Topic 431 β Canceled Debt β Is It Taxable or Not?
- IRS Form 1099-C β Cancellation of Debt Instructions
Extended
Insolvency Worksheet & Form 982 Calculator
Enter assets and liabilities line-by-line to compute insolvency amount. Generate Form 982 worksheet and SVG debt vs exclusion chart.
Enter each asset and liability line-by-line to precisely calculate your insolvency amount (IRS Form 982 Insolvency Worksheet).
Assets (FMV before discharge)
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Liabilities (before discharge)
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Form 982 preview based on your main calculator inputs. Shows which box to check and amounts to report.
| Form 982 Line | Description | Amount |
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Important: Form 982 must be attached to your Form 1040 for the year the debt was discharged. Excluding COD income reduces certain tax attributes (basis in property, NOLs, passive activity losses, etc.).
Compare tax outcomes across different debt types and insolvency levels for the same cancelled amount.
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| Scenario | Debt Type | COD Amount | Excluded | Taxable | Tax Owed |
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Frequently Asked Questions
What is cancellation of debt (COD) income and when is it taxable?
When a lender forgives or cancels a debt, the forgiven amount is generally treated as ordinary income (COD income) under IRC Β§61. The lender reports it on Form 1099-C. COD income is taxable in the year the debt is discharged unless an exclusion applies under IRC Β§108. Common exclusions include: bankruptcy (Title 11), insolvency (up to the amount by which liabilities exceeded assets), qualified principal residence debt (extended through 2025), qualified farm debt, qualified real property business debt, and certain student loans discharged under qualifying programs.
How does the insolvency exclusion work for mortgage debt forgiveness?
Under IRC Β§108(a)(1)(B), COD income can be excluded from gross income to the extent the taxpayer was insolvent immediately before the discharge. Insolvency = total liabilities exceeding total fair market value of assets. If your liabilities exceeded assets by $30,000 just before discharge, you can exclude up to $30,000 of COD income. Any COD income exceeding the insolvency amount is taxable. You report the exclusion on Form 982 (Box 1b) and attach it to your tax return.
Is the qualified principal residence debt exclusion still available in 2026?
The qualified principal residence debt (QPRD) exclusion under IRC Β§108(a)(1)(E) has been extended multiple times by Congress. As of current law, it applies to discharges occurring before January 1, 2026 (extended through 2025 tax year). For 2026 tax year, Congress may need to extend it again. The exclusion covers up to $2 million ($1 million for married filing separately) of forgiven mortgage debt used to acquire, build, or substantially improve a principal residence. Debt refinanced for other purposes (cash-out) does not qualify.
What is Form 982 and when must I file it?
Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) is filed with your tax return when you exclude COD income under IRC Β§108. You check the appropriate box (1a for bankruptcy, 1b for insolvency, 1c for qualified principal residence debt, etc.) and report the excluded amount on Line 2. The excluded amount reduces certain tax attributes (basis, NOLs, credits) in a specific order. Failure to file Form 982 when required can result in penalties and triggers examination risk since 1099-C is matched by IRS computers.
Does mortgage forgiveness in a short sale create both COD income and capital gains?
Yes β a short sale or foreclosure can create two separate tax events. (1) Capital gain or loss = sales price (or FMV) minus adjusted basis. For recourse loans, the "amount realized" is the FMV of the property, and COD income equals debt cancelled above FMV. For non-recourse loans, the entire debt balance is treated as amount realized, so there is only capital gain (no separate COD income). (2) If the property was your primary residence for 2-of-5 years, the Β§121 exclusion ($250K/$500K MFJ) can offset the capital gain. See our Home Foreclosure Short Sale calculator for the full two-event analysis.