Posted by: Catherine | April 8, 2010

California Tax Relief for short sale and foreclosure “cancelled debt” income


Finally, the legislature got it together and passed a bill that is now expected to be signed by Governor Schwarzenegger.  This bill will get California in line with the Mortgage Debt Forgiveness Act passed by Congress in 2007.   This prevents the “cancelled debt” incurred in a short sale, foreclosure, loan modification or deed in lieu, from being treated like taxable income.  I reported on this a few weeks ago here and here when people were being surprised this tax season by hefty state income tax bills. (talk about insult to injury!)

The AP article  published today and obtained through Channel 4 news, provides the following information:

“The bill would provide relief for homeowners who received mortgage modifications, lost their homes to foreclosure or sold their houses for less than they owed on their mortgages. It would prevent the canceled debt from being treated as taxable income.

      Currently, some types of debts that are forgiven can be considered as income and taxed by the government, meaning that homeowners spared from an overwhelming mortgage can face huge tax bills.

      Congress addressed the problem with the Mortgage Foregiveness Debt Relief Act of 2007. The recent legislative action conforms California law to that federal tax change, which runs through 2012.

      “The mortgage debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians,” said Sen. Ron Calderon, D-Whittier. “It’s about time we gave these folks a helping hand. They’ve lost their homes and they’ve sat by fretting over a whopping state tax bill they can’t afford.”

Catherine Myers
Broker Associate DRE Lic 01337828
Windermere Bay Area Properties
Walnut Creek, Clayton, Concord, Pleasant Hill, Martinez, California
925-683-2125

www.DiabloValley.net
Search homes for sale and get community information for Contra Costa including Walnut Creek, Concord, Clayton, Pleasant Hill, Martinez and surrounding areas.  Get short sale information, foreclosure avoidance resources and more.

 


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