Efforts to pass a tax extension bill that ensures troubled homeowners are not penalized when they receive debt relief in the form of mortgage forgiveness has come to standstill due to an impasse in Washington over the government spending and taxes.

In August, the Senate Finance Committee approved a bill that extends 27 tax provisions that are due to expire Jan. 1. The Senate bill ensures any mortgage debt that is forgiven in a short sale (or loan modification) is not taxed as ordinary income.

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