JOHNS: A lot of people are making financial decisions based on what's going to happen if the U.S. goes over the so-called fiscal cliff. As Christine Romans reports, some homeowners could face a big tax bill.</s>CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Marketing firm Realty Trac reports one in three homes sold in the third quarter sold short. That's when you sell a house for less than you owe on it and that bank agrees to absorb the loss. Right now you don't owe taxes on the forgiven debt. On the other side of the fiscal cliff you do. The mortgage forgiveness debt relief act gives homeowners a tax break on unpaid mortgage debt. It expires on December 31st unless Congress acts.</s>DAREN BLOMQUIST, VICE PRESIDENT, REALTY TRAC: The average amount that homeowners are short in a short sale is $95,000. If this tax break goes away as part of the so-called fiscal cliff, those homeowners could be taxed on the $95,000 as additional income starting in 2013.</s>ROMANS: How much homeowners will owe in taxes on that amount depends on the tax bracket they are in. But on average it would be between about $20,000 to $25,000. The banks have extra incentive to sell short and absorb the loss. Under the National Mortgage Settlement Act that went into effect earlier this year, the nation's biggest lenders get a credit for short sales as a form of foreclosure relief. Foreclosures also sell on average for $30,000 less than homes sold via short sales. So as we're nearing the fiscal cliff, you could expect short sales to jump even more as homeowners look to avoid getting hit with taxes and banks look to avoid getting stuck with foreclosed properties. If we go over the cliff the tax bill homeowners face with the short sale may be steep enough to walk away instead. That would push foreclosure rates higher in 2013. For "Smart is the New Rich," I'm Christine Romans.</s>JOHNS: Coming up, a huge legal headache for pop star Shakira. She's being slapped with a $100 million lawsuit by her ex-boyfriend and former business partner. Does he have a case? Our legal guys share their thoughts.
The Fiscal Cliff And Your Taxes