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No More State Tax on Forgiven Debt

By
Real Estate Agent with Bishop & Associates Real Estate DRE 00985714

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

For more information on this, visit CA's Franchise Tax Board website.

Posted by

Brad Hatton
Realtor® & CDPE®
Fremont, CA · 510-494-2120

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