The Mortgage Debt Relief Act of 2007 has survived the "fiscal cliff," which will invariably lead to a continued increase in the number of short sales nationwide. The "fiscal cliff" deal will extend the Act for another year, meaning that homeowners who receive debt forgiveness resulting from a foreclosure, deed in lieu, or short sale will be exempt from being taxed on that forgiven debt.
The amount extends up to two million of debt forgiven on the homeowner’s principal residence. In order for a homeowner to qualify, the forgiven debt must have been used to "buy, build, or substantially improve" their principal residence and be secured by that residence.