I have been asked many questions on what is better or should I say worse, a short sale or a foreclosure on the forgiveness of debt and the tax's that might due on the forgiveness. Now, as a Real Estate agent I would and will always say to consult a Certified Public Accountant for your specific situation but I do have some insight in this matter.

There is some "forgiveness" on the debt forgiven in a home sale, loan modification, credit card debt forgiven, car loan debt forgiven, deed in leau of foreclosure, and other debts forgiven. I would like to focus though on the "short sale" part.

When a home is sold and the proceeds of the sale are less then what is owed on the home this is considered a short sale.  In a short sale the lien holders (banks) will typically forgive less than what the amount owed on the lien. When this amount is forgiven will typically be considered as income to the seller and taxed at the seller's tax braket. But in 2007 The Mortgage Forgiveness Debt Relief Act and Debt Cancellation will help. There is some relief either in solvency or what the purpose of the liens are on your home. This for more complicated than a one time blog and I will leave the details to the professionals but I did want to make it aware to all. So, please click on the link and educate yourself on this matter, it could save you money on your tax's!!!