Speaking of the end of the year, the 2007 Mortgage Forgiveness Debt Relief Act is set to expire at the end of 2012.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
While the expected expiration of the Act likely fed the 35 percent increased in short sale volume across the US over the past year, listings of short sales in San Francisco have dropped dramatically from the middle of 2011 when over 225 properties, 14 percent of all listings and the peak of activity in San Francisco, were being offered as short sales.
Currently, less than 20 properties are listed as short sales in San Francisco, 3 percent of all active listings.
∙ The Mortgage Forgiveness Debt Relief Act and Debt Cancellation [irs.gov]