Last night the Senate passed the highly anticipated “fiscal cliff” bill which included an extension of the Mortgage Forgiveness Debt Relief Act. Had Congress not acted, the tax code would have reverted to its pre-2007 treatment of mortgage principal reductions or cancellations by lenders, whether through loan modifications, short sales, deeds-in-lieu or foreclosures: All principal balances written off would be treated as ordinary income to the homeowners who received them.
Example:  if a lender wrote off $100,000 of debt to facilitate a short sale, the seller would be taxed on that $100,000 at regular marginal rates, just as if he or she had earned it as salary.
 
A return to taxation of principal reductions would have disrupted short sales in 2013, and would have encouraged more distressed owners to opt for foreclosure and bankruptcy.

In 2012 nature and the mad nature of some human beings caused us to wonder how can we go on. From super storm Sandy to the Colorado movie house shooting and the massacre at Sandy Hook Elementary School, we have been pressed to find some answers to the question, why, me why us, why now? As we come into 2013, we bring with us the need to find answers and the hope to find what can we do to prevent the recurrence of these despairing occurrences. I think we must commit to a commitment to all human beings and a decision to accept our responsibility to nature’s outpouring and human misbehavior. I wish that we could say with Horace Mann that each of us should be “ashamed to die until you have won some victory for mankind.” I think we must surrender the despair of unexpected cruelty and extend the wonder of unexpected kindnesses to ourselves and to each other. 2013 can bring us the chance to be kind to each other and kind to ourselves. We deserve each other and each other’s generosity.