Cancellation of Debt from Foreclosure or Short Sale

An additional consequence of losing your house to either foreclosure or a short sale, is the potential tax liability.  (As if you aren’t hurt enough!)  The IRS has added a section to their website that helps explain it.  You need to consult a tax professional to be sure, but this site gives you some information to start with. 

** Update 12/20/2007 :  HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007 provides tax relief for homeowners who lose their homes during 2007, 2008, and 2009.  Read Kelly Kilpatrick’s article for a good explanation of what it does. 

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