THE DEBT FOREGIVENESS PROVISION FOR FORECLOSURES AND SHORT-SALES HAS BEEN EXTENDED TO 12/31/14! When a seller loses his/her/their home as a result of foreclosure or short-sale, the difference between what the home is sold for and what was owed (assuming there was a shortfall – meaning it was sold for less than what was owed) is considered “debt forgiveness”. Our current tax code considers debt forgiveness “income”. Moreover, this is “taxable” income. However, up until now, there has been a provision in place waiving this tax obligation, which is one of the reasons foreclosures and short-sales have been so prevalent the last few year. Without this provision, there’s no way the market would have recovered the way it has. This provision was scheduled to expire on December 31st of this year; however,this provision has been extended one full year (to 12/31/14). This was done as part of the federal government debt ceiling negotiations.
Please let me know if you have questions, need additional information, or want to discuss further.