Among the tax breaks expiring if Congress doesn’t get their act together is the one most important to Short Sale investors. The tax exemption from forgiven debt is going to be a thing of the past if Congress doesn’t extend the list of tax breaks.
Since selling below your mortgage and the bank letting you off the hook for the difference technically counts as “income” you’re liable for the income tax on that amount. But Congress realized early on that such a tax would only hurt the very people short sales are trying to help. So they decided to instate a tax break letting people use the “income” to move on in life to bigger and better things.
If this tax break is allowed to expire it will seriously hurt the industry and the economic recovery in general. Congress has determined through numerous studies that short sales have done more to stablize the housing market than any HAMP or TARP. So it’s critical that Congress make it clear to the country that they stand behind this tax exemption.