I decided to put some information out there about what all these changes mean to homeowners since I continue to get questions on it. Last year the President signed Bill HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007 into law. The three major components are:
Elimination of the "Phantom Tax" on foreclosures, short sales or other discharges of debt on a primary residence. Under the old rules the difference of any forgiven debt, also known as a deficiency judgement in foreclosures, was taxed as income to you. Now, taxpapers facing this situation and struggling to get back on their feet won't have to worry about paying extra $$ to Uncle Sam too.
Tax Deduction for Mortgage Insurance premiums is now extended until December 31, 2010. This means that if you didn't put at least 20% down payment on your home and you pay a mortgage insurance payment every month then you will still be able to claim this wonderful little tax write off.
The Capital Gains exclusion is now $500,000 instead of $250,000 for an unmarried individual who sells their primary residence within two years of the death of a spouse. See the Government does have a heart. Unfortunately, with the way the markets are today I don't think many people are going to run into this problem.
Ok, hope this helps clear things up, but if you have any other questions please don't hesitate to contact your friendly AZ Realtor!