Please, if you are considering a short sale of your home, talk to a real estate attorney or a cpa to determine any tax liabilities or ramifications of the short sale.
In 2007, Congress passed a bill that granted tax relief for home owners who sold their home as a short sale. Homeowners will be exempt from capital gains tax on the amount of debt forgiven by the lender. Read more at http://www.irs.gov/individuals/article/0,,id=179414,00.html
As always, this tax law is complicated and should be intrepreted for you by an accountant or attorney.
The exemption does not apply to investors and/or folks who own second homes.
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