Five Questions: Will I Owe Taxes on Forgiven Mortgage Debt? - Developments

``f the provision expires as scheduled on Dec. 31, it could throw a wrench not only into efforts to trim loan balances for underwater borrowers, but also for short sales, where banks allow homeowners to sell their properties at a loss. Real-estate agents from Nevada to Florida have been using the looming expiration as a marketing tool, telling homeowners that now's the time to do a short sale because come next January, they might owe taxes on it.

The deadline on the debt-relief measure comes as banks are beginning to cut homeowners' mortgage balances more aggressively as part of the $25 billion settlement reached earlier this year, as a report released Wednesday showed. Federal agencies, meanwhile, are taking steps to make short sales more attractive.''