There’s talk of the Federal Congress working for a law that would remove the tax burden from the short sale of a home when the owner can’t make the mortgage, and can’t sell it for the remainder of the mortgage. What is happening now is the option of the mortgage lender to “gift” the difference between the mortgage value and the sale price of the home, with the lender optionally giving the borrower a 1099 for that price difference. If you have US$200,000 remaining on a loan, and the home short sells for US$150,000, the lender is gifting you US$50,000, and issuing you a 1099 since the gift is considered income.

If the bill passes, the lender will be unable to give you that 1099, which would supposedly “help” the short seller by not having the tax burden from such a big gift. While I am vehemently against the IRS and the Federal Income Tax at every level, this new proposal creates a loophole that I believe many wealthy people will use.

Read the rest of this article at the housing bubble site.