Barrett Henry is a Broker Associate at REMAX Collective with 23+ years of Florida real estate experience. He works with homeowners in all 67 Florida counties navigating the full range of foreclosure options, including pre-foreclosure sales, short sales, and deed in lieu agreements. He regularly connects clients with qualified tax professionals for foreclosure-related tax issues.
If you received or expect to receive a Form 1099-C from your mortgage lender in 2026, this guide explains what that means and what tax options remain available after the expiration of the most widely-used federal tax exclusion.
The QPRI Exclusion Has Expired
From 2007 through 2025, the federal Mortgage Forgiveness Debt Relief Act allowed homeowners to exclude Qualified Principal Residence Indebtedness (QPRI) from taxable income when a lender cancelled or forgave mortgage debt through foreclosure, short sale, or deed in lieu. This exclusion -- found at IRC Section 108(a)(1)(E) -- was the primary federal tax protection for homeowners who lost their homes.
That exclusion expired on January 1, 2026. As of this writing, Congress has introduced H.R. 917 (119th Congress, 2025-2026) to make the exclusion permanent, but no bill has been enacted. Until legislation passes and is signed into law, the QPRI exclusion is not available for debt cancellations occurring in 2026 or later.
This matters enormously for Florida homeowners in the Florida foreclosure process, where judicial foreclosure takes 12 to 18 months and thousands of cases that began in 2024 and 2025 are reaching final judgment in 2026. If your home sells at auction in 2026 and your lender issues a 1099-C for the deficiency, you cannot use the old MFDR Act exclusion. See our full guide on 1099-C tax consequences of Florida foreclosure and our filing taxes during foreclosure guide.
What Exclusions Still Apply in 2026
Even though the QPRI exclusion has expired, other provisions of IRC Section 108 remain fully in effect. Two are relevant to most Florida homeowners:
1. The Insolvency Exclusion (IRC Section 108(a)(1)(B))
This is the most commonly available exclusion for homeowners who do not file bankruptcy. If your total liabilities exceeded your total assets immediately before the debt cancellation, you are considered insolvent, and you may exclude cancelled debt up to the amount of your insolvency.
Example:Your total debts (mortgage balance, credit cards, car loans, medical bills) = $450,000. Your total assets (home value, bank accounts, retirement accounts, vehicle value, personal property) = $300,000. You are insolvent by $150,000. If your lender cancels $80,000 in deficiency, you can exclude the full $80,000 because it does not exceed your $150,000 insolvency. Use IRS Publication 4681's Insolvency Worksheet to calculate your insolvency amount and report the exclusion on IRS Form 982.
Many Florida homeowners going through foreclosure are insolvent, especially those who also carry other consumer debt, medical bills, or car loans. The insolvency exclusion effectively replaces the QPRI exclusion for homeowners who meet the test. Consult a CPA or tax attorney to run the calculation before assuming you do not qualify.
2. The Bankruptcy Exclusion (IRC Section 108(a)(1)(A))
Debt cancelled while a Title 11 bankruptcy case is pending is excluded from income entirely, without any insolvency test or dollar limit. If you file Chapter 7 or Chapter 13 bankruptcy and your mortgage debt is discharged in that case, there is no taxable cancelled debt income.
For homeowners who cannot qualify for the insolvency exclusion (or who only have partial insolvency), filing bankruptcy is worth evaluating with a bankruptcy attorney. It may eliminate both the tax liability and the deficiency judgment risk simultaneously.
How to Avoid the Problem Entirely: Stop the Foreclosure
The cleanest way to avoid a 2026 cancelled debt tax issue is to avoid debt cancellation in the first place. The following strategies eliminate the 1099-C problem:
- Loan modification: Modifying the loan terms keeps the debt intact. No debt is cancelled, so no 1099-C is issued.
- Reinstatement: Paying the full past-due amount brings the loan current. No debt is forgiven.
- Pre-foreclosure sale with equity: If you have equity, selling pays off the mortgage in full. No deficiency, no 1099-C.
If you owe more than the home is worth, options that may result in a smaller 1099-C than a completed foreclosure include:
- Short sale: Lender accepts less than payoff but the 1099-C amount may be smaller than a full deficiency.
- Deed in lieu: Transfers property in exchange for debt release. Lenders sometimes waive the deficiency entirely, meaning no 1099-C.
See our guide on how to stop foreclosure in Florida for a full comparison of every option.
What About the 2026 1099-C Timing
Your lender must send you a Form 1099-C within 60 days after the cancellation event. For a Florida foreclosure that completes at auction in 2026, expect the form by early 2027. You will report the 1099-C on your 2026 federal Form 1040 (due April 15, 2027, with extension available to October 15, 2027). Use IRS Form 982 to claim the insolvency or bankruptcy exclusion if you qualify.
Review the Florida foreclosure checklist for a timeline of all deadlines, including tax obligations.
The Florida Advantage: No State Income Tax
Even with the QPRI exclusion gone, Florida homeowners have a significant advantage over homeowners in states like California, New York, or Massachusetts: Florida imposes no state income tax. Cancelled mortgage debt is a federal tax issue only. There is no Florida Department of Revenue form to file, no Florida income tax on the cancelled amount, and no Florida capital gains tax.
Action Steps for Florida Homeowners in 2026
- If you have time, explore every option to stop the foreclosure before it completes. Contact a HUD-approved housing counselor for free guidance.
- If foreclosure or short sale is unavoidable, hire a CPA or tax attorney experienced in distressed property to run the insolvency calculation before the cancellation event occurs.
- Save all documents: original loan note, modification agreements, foreclosure judgment, sale deed, Form 1099-C, HUD-1 or closing disclosure.
- File IRS Form 982 with your 2026 Form 1040. Do not ignore a Form 1099-C — the IRS receives a copy and will assess tax if you do not respond.
- Monitor Congress for any retroactive extension or reinstatement of the QPRI exclusion for 2026. If enacted before your filing deadline, you may be able to amend your return or file with the new exclusion.
Related Guides
- 1099-C Tax Consequences of Florida Foreclosure
- 1099-A vs. 1099-C: Florida Foreclosure Tax Forms
- Filing Taxes During Florida Foreclosure
- Tax Consequences of Deed in Lieu in Florida
- Florida Deficiency Judgments After Foreclosure
- Bankruptcy and Foreclosure in Florida
Facing foreclosure in 2026? Get free help today — no cost, no obligation. We connect Florida homeowners with experienced foreclosure attorneys, HUD-approved counselors, and tax professionals throughout all 67 Florida counties.
