Rising home prices are the foundation of today's housing recovery. They are drawing much-needed buyers back to the market. Prices would not be rising if the number of foreclosures wasn't falling. They also wouldn't be rising without underwater borrowers getting a break from their banks. Both of those are happening because banks are slashing the balances of thousands of mortgages and letting homeowners sell for less than the value of their loans rather than going to foreclosure.
That debt forgiveness is currently not taxable, thanks to a law passed five years ago which expires at the end of this year. There is bipartisan support to extend that law, but so far any action has been mired in stickier negotiations surrounding the so-called "fiscal cliff."