Just before the holidays the House and Senate passed the Protecting Americans from Tax Hikes Act of 2015 (“Act”). President Obama signed the Act into law on December 18, 2015. The Act renews several important extenders for two years covering tax years 2015 and 2016.
What does this mean for you? It means that if you short sold a principal residence in 2015, or short sell a principal residence in 2016, the cancellation of mortgage debt will not be treated as taxable income and you will likely suffer no tax liabilities. The exclusion applies up to Two Million Dollars of forgiven debt, or One Million Dollars if you are a married taxpayer filing separately, on the sale of a principal residence.