According to the story in the Star Tribune this weekend, the U.S. Senate has finally approved the bill that will keep the IRS from taxing home owners who receive debt relief from their banks when they have a short sale. (For more information about short sales, see my earlier post here).
For example, let’s say a seller is granted a short sale of $75,000 from his/her mortgage company. The bank then issues a 1099 stating they have given this seller $75,000 in debt relief. The IRS gets this information and then considers it income for the seller. Typically they would be hit with a $15,000 – $20,000 tax bill.
The U.S. Senate has been sitting on this bill for months. Now that the election year of 2008 is here, they decided to okay this bill. The final details still need to be hammered out between the House and Senate before it can be sent to President Bush. But it looks to me like this will become law soon….likely before the President’s State of the Union address in late January.