There seems to be much confusion about what taxes may be owed if you sell your home via a Short Sale. Let’s clear this up. Basically a short sale is when your lender agrees to take an amount less of what is owed. For millions of people in foreclosure, a short sale is sometimes an option. But what happens to the amount forgiven? Well, in the past you were responsible for paying taxes on that amount. However, Congress passed the Mortgage Foregiveness Debt Relief Act. Due to that, you no longer have to pay taxes on a short sale.