In 2007, Congress did a wonderful thing for folks who were forced to do a short sale (selling the home for less than the mortgage balance, with the lender agreeing to take the loss) or a loan modification. Congress allowed these borrowers to exclude from taxable income any mortgage debt written off or "forgiven" by the lender. And many folks have taken advantage of this for the past 5 years. Consider the example of a couple who does a short sale and the bank agrees to an exclusion of $100,000 on the sale of the home. That translates to approximately $30,000 of forgiven taxes.
However, this exclusion expires on 12/31/12 unless Congress extends it. So, if you are thinking about a short sale and don't want to miss out on this most generous exclusion, you better act FAST.
Short sales take time....lots of time. An average of 3 or 4 months. Start NOW.
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