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A tax break for forgiven mortgage debt that was set to Dec. 31 was extended by lawmakers when they dodged the “fiscal cliff” this week.

The tax break, which has been extended to the end of 2013, allows home owners facing short sales, reduced principals, or foreclosures to avoid paying taxes on any debt still owed to the . Otherwise, the debt would have been taxed by the as income.

The tax break first took effect in 2007.

Home owners had rushed to complete short sales before the end of the year out of fear that the tax break would not be extended.

In , short sales have sold on average for about $103,000 less than what the home owner owed. As such, a typical home in that state in, say, the 25 percent tax bracket who completed a short in 2013 would have been faced with a $25,725 tax bill if the extension had expired.


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