The extension of the Mortgage Debt Relief Act of 2007 applies to most homeowners who are going through “short sales,” selling their homes for less than what is owed on their mortgage.
The exception allows homeowners to exclude from their income the cancelled debt on their principal residence.
The relief act’s extension is vital to the recovering housing market. Short sales nationwide had been rising in anticipation of the exception’s end on Dec. 31, 2012, it will now expire on Dec. 31, 2013.
Normally, debt that is forgiven or cancelled by a lender is taxable.
The amount of debt forgiven must be reported to the IRS ON your tax return.