I am sure most of you have read the USA Today article or the reprint in Sundays Pensacola News Journal about the new Tax break. This is welcome news for all American's in that now you do have an option of moving a home you are upside down in without penalties. I just want to break it down to a more simple example so all will understand what this means.

John Doe buys a home in 2005 for $200,000.00 with a 100% mortgage. Today he needs to sell the home for any number of reasons. Maybe he had a short term adjustable rate and the payments have gone up so he cannot afford the home, Maybe he just needs to move or is being transferred, Maybe his income has been affected in some way. At any rate the home is now appraising for $160,000.00 and his balance with his mortgage company is still around $200,000.00. Through Foreclosure, Short sale or forgiven loan debt John Doe sells the home. The sell went through at $150,000.00. John Doe moves and thinks the nightmare is over. He is wrong. Now the IRS is looking at him because the lender took a $150,000.00 payoff on a $200,000.00 debt and the lender wrote off the $50,000.00 as a bed debt thus forcing John Doe to pay taxes on this money just like income. In other words if the sale just happened John would have tax debt on $50,000.00 for this year before he ever earned a penny. This Tax has now been forgiven.

The article states Congress and our President felt in this mortgage crisis this was a double whammy and has forgiven the tax debt for all 2007, 2008 and 2009. A short sale is a tool used today to try and make everybody happy. The seller gets out of the home. The buyer gets a good deal and the bank reduces cost associated with foreclosure. This is just another bit of good news.