I am frequently asked about the tax implications of short sales vs foreclosures, specifically on what will happen, tax-wise, on the debt not covered by a sale.

In California we have the Mortgage Debt Forgiveness Relief Act of 2007. Because of this the IRS is not charging income tax on most mortgage debt forgiven through short sale or foreclosure — especially on a borrower’s primary residence, and with a few other conditions.

You’ll want to read this article to find out how this affects you.  Worse tax bite: short sale or foreclosure? | Inman News.