Indebted homeowners take notice - your most valuable tax exemption is about to expire.

In 2007, Congress passed a debt relief law that allowed mortgage holders to avoid paying taxes on forgiven debt. Under normal circumstances, if you sell your home in a short sale, refinance your mortgage or go through foreclosure, the amount of debt you no longer have to pay counts as "income" for tax purposes.

However, under the Mortgage Forgiveness Debt Relief Act of 2007, discharged mortgage debt is exempt from taxation. It is important to note that the rule applies only to a primary residence, not to vacation, rental or investment properties.

Act Soon, Since Lenders Move Slowly

The exemption will expire at the end of 2012. Although December may seem far away, it's not when you consider how slow mortgage companies are to act.

On average, it takes approximately 674 days for a lender to process a foreclosure. Often, foreclosure proceedings don't start until more than a year after the lender received the last mortgage payment.

Short sales can take anywhere between three to 10 months to complete, depending on the lender and the real estate market. Refinancing - often the quickest debt-relief option - takes about two months.

This could be many homeowners' last opportunity to take advantage of this tax-free debt relief strategy. To date, Congress has not indicated that it has plans to renew the exemption.

If you find yourself overwhelmed by mortgage debt, know that you have options. Contact a Florence bankruptcy attorney who can help determine the course of action that is best for you.

Source: Chicago Tribune, "Debt-Relief Window Closing Soon," Lew Sichelman, Jan. 13, 2012.