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Short Sellers Beware!

Changes in Tax Deductions - Short Sellers Beware!

The forgiveness of indebtedness exclusion has expired! On December 31, 2013, the tax break that previously allowed a seller to exclude from taxable income any debt that may have been waived by seller's bank (forgiveness of indebtedness income) related to the taxpayer's principal residence expired. This means that any amount of principal that a lender forgives in either a mortgage modification or short sale will now be treated as ordinary income and subject to tax. Unless Congress votes to extend the tax break retroactively, homeowners who short sell or modify their mortgage with a principal reduction will be taxed on the amount forgiven.

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