More consumer-friendly provisions of the fiscal cliff deal thatwas signed into law by President Barack Obama Thursday morning keepsurfacing.

Under a provision authored by Sen. Debbie Stabenow, D-Mich.,underwater homeowners whose banks forgive a portion of theirmortgage will not face huge new tax bills this year.

Stabenow's Mortgage Forgiveness Tax Relief Act, whichis extended for another year, stops the IRS from taxing mortgageforgiveness as income in the case of a short sale, refinancing orforeclosure, protecting families who own underwater homes and workwith their lenders from being unfairly hit with an additional taxbill. The law was first signed by President George W. Bush in 2007but set to expire at the end of 2012.

Michigan is fifth in the nation in underwater mortgages, withnearly one in three homes underwater (over 440,000 homes across thestate), according to a statement released by Stabenow's office.

“It was extremely important that Congress was able to cometogether to make sure families whose homes are underwater don't gethit with a huge new tax bill they don't deserve,” said Stabenow, inthe release. “Across Michigan and across the country, manymiddle-class families are still working to recover from the globalfinancial crisis that sent home values plummeting. If Congress hadnot included this provision, the housing market could have taken abig hit just as it is starting to turn the corner.”

Gary Thomas, president of the National Association of Realtors,said in the same statement that “Realtors are appreciative of Sen.Stabenow's efforts to secure an extension of tax relief forforgiven mortgage debt. The extension will help many troubledborrowers who were uncertain about their future, and is vital tothe nation's recovering housing market and economy.”

Before Stabenow's original bill was signed into law, if a familyowed $150,000 on their home but could only sell it for $100,000,and the bank forgives the remaining $50,000 of the mortgage, theIRS treated this $50,000 as taxable income. “That would mean anaverage middle class family would have to pay an additional $12,500in income taxes on top of their regular income taxes,” Stabenowsaid. Stabenow's law “stopped this from happening for five yearsfrom 2008 through 2012, but would have expired for 2013 if it hadnot been extended.”

This article was originally posted at AdvisorOne.com, a sister siteof Credit Union Times.