In 2007, when short sales were more common, Congress passed legislation that allowed short sale sellers to avoid paying income tax on the debt forgiven in their short sale.
That legislation is set to expire 12/31/13, less than three weeks from now, unless Congress acts to extend the deadline.
That means that homeowners who don’t close their short sale by the end of the year could owe income tax on the amount of debt forgiven in their short sale.
If you’re a seller in the midst of a short sale, I recommend that you do everything you can to close by the end of this year.
Given the current state of affairs in Washington D.C., you can’t count on Congress doing much of anything, including extending this law.
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