New tax implications for Short Sales

How the Federal Mortgage Forgiveness Debt Relief Act affects homeowners facing Short Sales


For the past five years, homeowners whose banks have forgiven unpaid mortgage debt after a short-sale principal reduction or foreclosure have not counted that money as income on their tax returns. The federal Mortgage Forgiveness Debt Relief Act could expire January 1, 2013 meaning borrowers may be faced with big IRS bills after losing their home if the sale happens after January 1, 2013. 

Attorneys general from all over the United States are pushing for an extension of the act.
“If the act expires, you will be asking people to pay cash on an income they never received and with cash they don’t have,” says John DiBiase, communications director for the National Association of Realtors®’ government affairs office. “I think that is well-understood, especially by members of the Florida delegation.”