The Mortgage Forgiveness Act was written and enacted into law as a measure to help homeowner who have sold their homes in a short sale, but still owned the lender. The bill gave the homeowner tax exemption for the debt.
The Mortgage Forgiveness Act expires on the eve of the worst housing crisis since the Great Depression.
If you was fortunate enough to sell your home last year, but needed to sell it with the lender getting less than what they were owned; you may be taxed on the deficiency. The bill, President Bush signed that gave tax exemptions on the deficiency created from the short sale is now taxable unless Congress extends the bill.
There is still time to ensure that the debt is forgiven by the lender if your property is sold after January 1, 2007 and before January 1, 2013. The home must be your primary residence and the debt that is forgiven is debt from the first loan. A secondary or HELOC is not eligible.
The tax form that allow you to take advantage of debt forgiveness is Tax Form 982. You have to prove that you are insoverign and unable to pay the debt back.
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