I am often asked how a short sale or foreclosure affects taxes. In general, the difference between the mortgage balance and the sale price is reported to the IRS, and is taxable. In some cased, the Mortgage Forgiveness Debt Relief Act of 2007 provides relief. It has been extended to December of 2012. This element is cause for some to choose to move forward with a short sale in order to take advantage of this Act.
I encourage you to watch this video clip. If you have any further questions about short sales or avoiding foreclosure, please call me at 480.354.7344 or use the Short Sale Calculator to see how you stand.