If you are among the many homeowners who have refinanced your home or sold your home in a short sale in 2007, this may be important news. Also, if you are considering refinancing your principal residence or need to sell it in a short sale in the near future, take heed to the following; it may save you money.

Yesterday, December 20, 2007, President Bush signed a new law which includes a number of tax relief measures aimed at helping the many home owners now facing the need to sell or refinance their homes. This new law is called the Mortgage Forgiveness Debt Relief Act of 2007.
 
Prior to the new law being enacted, borrowers who entered into a refinancing transaction or short sale which involved the forgiveness of debt on their “qualified principal residence” were potentially subject to a tax on the amount of debt forgiven. This amount of debt forgiven by a short sale or refinancing, called debt discharge income, was taxable.

This is how the new law works: retroactively from January 1, 2007 and continuing through December 31, 2009,  all such transactions resulting in debt discharge income are now no longer subject to being taxed. For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, click here.

As always, contact your tax professional for advice relative to how this new tax relief bill may affect your specific real estate selling or refinancing transaction.