Yesterday Congress passed a bill, The American Taxpayer Relief Act of 2012, which extends the Mortgage Forgiveness Debt Relief Act of 2007 through the end of 2013. This legislation also extends several other tax cuts set to expire such as the mortgage insurance deduction on a qualified personal residence.

With the extension of the Mortgage Forgiveness Debt Relief Act homeowners who have mortgage debt forgiven, through either a short sale or loan modification, won't be taxed on the forgiven amount up to $2 million. This is great news for distressed homeowners as they can still do a short sale and avoid immense tax consequences.