The Mortgage Debt Relief Act of 2007 expires 12/31/2013. This causes a huge "double hit" for people with homes under water and in a short sale. Without the Act, you receive "income" (and a 1099 tax bill) when you lose your home due to debt forgiveness!!
The Act generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
The Act should be extended for at least 1 one more year as we climb out of this crisis!!