Seek representation from a tax attorney, an enrolled agent, or a CPA.
Marty Davidoff, firstname.lastname@example.org, 732-274-1600. This answer is provided for general information only. You should seek advice from an attorney or tax professional.
In 2007 the federal government enacted the Mortgage Debt Relief Act which has allowed taxpayers to exclude income from the discharge of debt on their principal residence, including balances forgiven by a mortgage lender when they accept a short sale. However, that act applies only to federal income tax, and Massachusetts has not enacted a similar act for state income tax, which is why you may still owe state taxes on the amount forgiven by your lender. You should speak with a tax attorney or accountant as soon as possible to understand your state tax obligations for your short sale.
Speak with your accountant.
Mr. Pascale is licensed to practice law in the State of New York. The response herein is not legal advice and does not create an attorney/client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and time-lines that, if known, could significantly change the reply and make it unsuitable. Mr. Pascale strongly advises the questioner to confer with an attorney in their state in order to insure proper advice is received.