Americans are not only counting down the number of shopping days this holiday season. As the Mortgage Forgiveness Debt Relief Act draws to a close on Dec. 31 — barring an expected extension — homeowners who are under contract to sell their homes via short sale are getting anxious too. The Mortgage Forgiveness Debt Act, which in essence wipes out the tax liability for homeowners who short sell their homes in qualifying situations, is set to expire at the end of the year. Congress has been urged to extend the Act, but with so much of the tax law tied into the "fiscal cliff" crisis, it is not expected to be extended until just prior to Dec. 31, or even afterward with a retroactive application.
If it is not extended, those homeowners who short sell their property will suffer tax liability on the dollar amount forgiven by the lender through the short sale process (unless the tax liability is waived due to insolvency or some other exception).
As a result, homeowners are pushing lenders to finalize short sale negotiations this month. Additionally, 40 state attorneys general signed a letter to Congress urging the Act to be extended.
It certainly makes the focus on the "fiscal cliff" saga even greater, as underwater homeowners prepare for a potential tax hit in 2013.