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End of mortgage-fix break could mean big tax bills

Say a family is behind on their mortgage and the bank cuts them a deal, maybe reducing the loan principal or forgiving the mortgage balance after a "short sale" in which the seller owes more than the final price. Under traditional IRS rules, the amount of that debt forgiveness would be taxable income. That temporarily changed in 2007 when Congress passed the Mortgage Foreclosure Debt Forgiveness Act. That law is set to expire at year's end. A return of the tax could affect many of the nearly 10 million Americans who owe more on their loans than their homes are worth, according to the National Association of Realtors (NAR).