In 2007, Congress created a bill that would give some tax relief to homeowners who had lost their home through foreclosure or short sale or received some type of mortgage reduction on their home. Normally, the deficiency created by the sale or refinance of a home for less money than what is owed creates a tax liability for the seller. Whatever amount the bank forgives is considered income and the seller usually has to pay taxes on that amount. The Mortgage Forgiveness Debt Relief Act of 2007 …
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