Posted by: Catherine | March 9, 2010

California one step closer to exempt short sales from tax

Yesterday California’s Assembly voted to advance a tax bill meant to exempt homeowners who lose their homes in a short sale or foreclosure, or who modify their loans including principal reductions, from California State Tax.

From the article in the Press Enterprise:

“…the bill authored by Sen. Lois Wolk (D-Davis) would exempt people who did short sales or received loan modifications or lost their houses in foreclosure last year from having to pay state tax on any mortgage debt that was forgiven. Otherwise the forgiven debt would be considered income for the homeowners even though they received no money from the sale of their home.”

The IRS has already passed legislation in the Mortgage Debt Forgiveness Act of 2007 (HR 3648) and was meant to exempt certain sellers from Federal Income tax on the forgiven debt when their homes are lost in a short sale or foreclosure.  However, as I mentioned in a previous blog post on this subject, many Californians were being caught off guard by their state tax liability.

I am not a tax consultant or expert.  Please consult your tax attorney or CPA on all matters related to taxes, recourse, credit and finance related to your decision to short sale, foreclose or modify your loan.  The decision to short sell, foreclose or modify has many variables and not all situations can be treated the same.  DO NOT rely on anything you read on the internet as tax advice.  Seek your own counsel.


Catherine Myers

Contra Costa , Alameda County Short Sales
Walnut Creek, Concord, Clayton, Pleasant Hill and surrounding areas.
Your real estate and short sale resource. 

Contra Costa homes for sale, foreclosures, REO

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