Don’t know why so many people don’t seem to know this, but let me correct a misperception.

You may believe that if you sell your home in a short sale, you could be in for a big tax bill – as if getting out from under your old mortgage is the same as actually making some money.

That’s not true, at least when it comes to taxes.

There’s a two-year-old law that allows you to avoid federal income tax on forgiven mortgage debt, such as what you’d have in a short sale or a loan modification, under certain conditions.

The IRS says the Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude from your taxable income:

-Up to $2 million in mortgage debt

-If it’s forgiven between 2007 and 2012

-If the debt t is discharged due to a decline in the home’s value or the taxpayer’s financial condition

-If it was for your principal residence

It’s a break, for those in dire distress.