Hidden Tax For Short-Sellers?

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Down-on-their-luck homeowners who avoid foreclosure through short sales or loan forgiveness could owe the IRS big bucks because partisan wrangling is holding up extension of a popular tax break designed to help them.

“We’re talking about people who are financially distressed and simply don’t have the wherewithal to pay this tax liability,” says Steve Brown, president of the National Association of Realtors. “If they had the money, they wouldn’t be in distress.”

Before 2007, homeowners who worked something out with their lenders to avoid foreclosure would find suddenly that the Internal Revenue Service treated any principal a bank forgave as taxable.

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