Exclusion Limit

The maximum amount that can be treated as qualified principal residence indebtedness is $2 million ($1 million if Married Filing Separately). The basis of the taxpayer's principal residence is reduced by the excluded amount, but not below zero.

The exclusion doesn't apply to the discharge of a loan if the cancellation was because of services performed for the lender or any other factor not directly related to a decline in the value of the residence or the taxpayer's financial condition.