t midnight 12/31/2012, the tax law for buyers and sellers of short sales may change. Currently there is a law that protects the tax liability of a seller of a home that is being sold for less than the mortgage amount. This is commonly called a Short Sale. If you sell your house in a Short Sale and you do not have to pay the mortgage company the difference, that is considered income by the IRS. Until midnight December 31, 2012, if you sell your home for less than the mortgage amount with no deficiency, you do not pay taxes on the difference. For example, if you had a mortgage of $400,000 and you sold your house as a Short Sale for $300,000, and the lender is not suing you for the $100,000 the IRS considers that $100,000 profit to you. Of course when the IRS considers something a profit, it wants you to pay taxes. In 2007, Congress passed a law that the deficiency of a home you lived in would not be taxed to you. So, in the above example, you do not have to pay taxes on the $100,000.
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation has a lot of information on what this means to you. If you are thinking of selling or buying your house, contact an attorney immediately to discuss how this affects you BEFORE 12/31/2012. Our number is 331-222-9529. Do not delay.