In 2007, congress passed the federal Mortgage Forgiveness Debt Relief Act, a law that allowed taxpayers to exclude “forgiven” debt after a shortsale, foreclosure, or loan modification to be excluded from a person’s “income”. That law is set to expire on December 31, 2012. Prior to the enactment of the law, any forgiven debt was considered “income” to a borrower and the borrower had to pay income tax despite not actually receiving actual “cash-in-hand” income. If Congress does not extend the law, a number of real property owners will face increased income taxes in the wake of transactions related to distressed properties. Many short sales currently in progress will be effected. Attorneys General from a majority of states have urged the congress to extend the law when they go back to work in December.