Among the tax breaks at risk in the negotiations between the White House and Congress to avert the “fiscal cliff” is a measure aimed at helping struggling homeowners, the Washington Post reported on Friday. Since 2008, more than 800,000 homeowners have been allowed to sell their homes for less than they were worth, known as a short sale, through a government program. In other cases, banks have lowered the balance owed on mortgages to make the payments more affordable and to encourage homeowners not to walk away. Both types of mortgage relief were key to a $25 billion mortgage settlement between the government and big banks this year. In a short sale, the difference between what is owed on a mortgage and the price at which a homeowner is allowed to sell his or her home could be considered taxable income. The same is true when the principal balance of a mortgage is reduced. That tax liability was waived under the Mortgage Forgiveness Debt Relief Act of 2007, which expires at the end of this month.
