Mortgage Forgiveness Debt Relief Act Expires Dec 31 2012

If you plan to do a short sale, make sure you have it completed by December 31, 2012 because it expires.

FACT:

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money to purchase your home, you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and to the IRS on a Form 1099-C, Cancellation of Debt.

Normally, debt that is forgiven or cancelled by a lender must be included as income…