There was a lot of speculation going into the new year regarding whether or not the Mortgage Debt Relief Act of 2007 would be extended through 2013. The Mortgage Debt Relief Act protects distressed homeowners from having to pay taxes on the difference between the amount owed on the mortgage and the price of the short sale. For example, if a homeowner had a mortgage of $200,000, and the bank agreed to a short sale of $100,000, the IRS would assess the $100,000 difference from the distressed homeowner. Forgiven debt is normally considered taxable income, but under the Mortgage Debt Relief Act of 2007, distressed owners do not have to consider their discharged debt as income (for their primary residence). Fortunately for these homeowners, the Congress came together to extend the legislation through 2013.