If you are currently in the process of short selling your home or your home is going to be foreclosed but you are trying to put off as long as possible, there is some very important info you need to know:
There is currently a Mortgage Forgiveness Debt Relief Act of 2007 that Bush started and was extended. As of right now however, it EXPIRES 12/31/12 unless our gov’t renews. What does this mean for you?
Currently the act protects those who sold their home under duress or had their home foreclosed from them from having to pay taxes on the forgiven debt (ie the shorted amount when sold via short sale or the amount still owed bank when foreclosed). Without this Act, the forgiven debt can be counted as taxable income for the year the short sale or foreclosure occured.
As of 1/1/2013, that will be the case if this Act is not renewed. Your National Association of Realtors is working hard to get it renewed, but it may not happen. Just beware that if your short sale or foreclosure does not occur by 12/31/2012, you may be liable for taxes on the forgiven debt amount.
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