The Mortgage Forgiveness Debt Relief Act is a government bill that offers relief to most homeowners who would normally owe taxes on the forgiven debt after performing a short sale. The purpose of this act is to help homeowners avoid additional financial hardship by performing a short sale. This Act became a law in 2007. Prior to this act the borrower would have to pay taxes on their forgiven debt. With this act in place, a borrower does not have to pay income tax on forgiven debt in MOST cases.
You should consult a CPA for information on the tax ramifications of a short sale in your specific case. Please be advised that I am not a CPA and the following information should be taken as tax advice.
It’s important to know that when performing a short sale you will always receive a 1099 on the debt forgiven. The question is whether or not you will be held.. For the entire article click here