After the real estate crash many taxpayers’ mortgages exceeded the value of their properties so they did a short sale or went through a foreclosure. Many of these taxpayers received 1099-C s from their banks showing large amounts of debt cancellation. Generally, cancellation of debt is taxable income but due to the magnitude of the crisis congress passed a temporary exclusion of up to 2 million dollars for taxpayers that lost their primary residence. This temporary exclusion expires at the end of 2012(Now 2013) so taxpayers who lose their homes in future years could be stuck with a substantial tax liability. Taxpayers should contact a knowledgeable tax professional who can clearly explain the tax consequences of short sales and foreclosures before surrendering their property.