Submitted By: HC
Answered: February 4, 2014 8:30 am

I am underwater with my home mortgage and I’m working on closing a short sale. Does the tax-free treatment of debt forgiveness rule apply in 2014?

The favorable rule allowing debt forgiveness on a principal residence mortgage up to $2 million expired at the end of 2013. It could be extended, but given the resurgence in the housing market, it may not be included in a package of extenders this year. Stay tuned!

Tax Glossary


Generally, the receipt of cash or its equivalent accompanying an exchange of property. In a tax-free exchange, boot is subject to immediate tax.

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