California Short Sale Sellers Get Good News
New Changes to Rules Regarding Debt Forgiveness
Homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. Enacted into law on April 12, 2010, Senate Bill 401 now aligns California's tax treatment of mortgage debt relief income with federal law.
According to a press release from the California Association of Realtors®, "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."
These tax changes apply to debt discharged from 2009 through 2012.