As I realtor, I always cautioned sellers that if the home was sold via short sale or if it was foreclosed upon, they could end up paying taxes on the difference between the sale price and what you owe. In other words, if you owed $120,000 on a home and it sold for $100,000, that $20,000 difference could be considered income for you as an unrealized gain. From CNN Money,
Should the tax break expire, a large number of mortgage borrowers could be affected. More than 50,000 homeowners go through foreclosure each month. Meanwhile, the number of short sales has tripled over the past three years to a rate of about half a million a year. And, under the terms of the $25 billion foreclosure abuse settlement, roughly one million borrowers may have their mortgage debt lowered through principal reductions over the next couple of years.
Some good news is that although Congress may be labeled “lame duck,” some members are motivated to extend the relief.
