Temecula Short Sale Specialist Sidney Kutchuk talks about how homeowners who go through a short sale are protected from paying taxes to the IRS on Phantom income. The Mortgage Forgiveness and Debt Relief Act of 2007 was signed into law and extended through Dec 2012. What is Phantom income? This is income you never really see but may owe the IRS. After you sell your home via a short sale your lender will put their loss on a form 1099-C and send a copy to you and the IRS.Before the Mortgage forgiveness act the IRS could tax you on this amount, as if you really received this income. -Enjoy the video….