Though the confusing and complicated nature of the “fiscal
cliff” is too much for most Americans to digest, see this Pew Research Study, an important outcome of the settlement reached by Washington politicians means
that homeowners who go through a short sale or foreclosure will NOT have to pay
taxes on the mortgage debt forgiveness they receive. Normally, the tax code
provides that forgiven debt be treated and taxed as regular income. Homeowners
going through a short sale or foreclosure often find themselves with hundreds
of thousands of dollars of “forgiven debt” and the tax implications would force
many into even deeper financial ruin. As a result of the January 1 “fiscal
cliff” deal, the Mortgage Forgiveness Debt Relief Act was extended for one year through the end of 2013 giving a reprieve to many
worried homeowners.
