Tax and financial advice from the Silicon Valley expert.

Tax break for cancellation of residential mortgage expires after 2012

The exclusion for cancellation of debt income for a principal residence mortgage is scheduled to expire after 2012.

You can read more details about the exclusion in this article

If you want to take advantage of this exclusion, your short sale or foreclosure should be done by December 31, 2012 (the end of this year).

Since you don’t have control over the process of a foreclosure, you will probably pursue the short sale alternative.

I highly recommend that you get legal and tax advice before going ahead.

Remember there are alternative exclusions for cancellation of indebtedness income, including bankruptcy, insolvency, and qualified real property business indebtedness.

Also, the exclusion generally doesn’t apply to a short sale or foreclosure involving a nonrecourse mortgage, because the property is deemed to be sold for the amount of the mortgage.

Here is a link for the IRS publication about debt cancellation

Contact your representatives in Congress about extending this tax break. There are many taxpayers who still haven’t resolved their mortgage issues relating to the collapse of the real estate market and the economic slowdown.

Tax and financial advice from the Silicon Valley expert.