New CA law provides tax relief for forgiven debt
As short sales, loan forgiveness, and foreclosures proliferate, many former homeowners are finding themselves with a huge tax bill. Any amount of your loan the is forgiven is subject to taxes as if it were income.
In California, there is now some relief. Gov. Schwarzenegger signed SB 401 into law last Monday which modifies California law to match the tax treatment of forgiven debt with that of the federal government, recently changed through the federal Mortgage Forgiveness Debt Relief Act, which forgives this “phantom” income up to certain amounts. The new California law retroactively applies to such income back to the beginning of 2009.
The limits are complicated and not easily described. For more detail, read the text of SB 401 (California) or the text of the Mortgage Forgiveness Debt Relief Act (IRS).
Foreclosure, Legal & regulatory, Loan modification | admin June 27, 2010
