When President Obama signed the Fiscal Cliff legislation last week, it included a provision extending mortgage debt forgiveness to those who short sell their home. This provision of tax code expired on the federal level, as well as the state level at the end of 2012.
In an effort to conform state law to the extended federal law on mortgage debt forgiveness, C.A.R. is sponsoring Senate Bill 30, so that California homeowners on the brink of foreclosure can get much needed debt relief.
SB 30 (Calderon, D-Montebello) will for one more year exempt the taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification (including any principal reduction).
The previous California exemption lapsed at the end of 2012, so forgiven mortgage debt is considered taxable state income for the time being. Upon passage of SB 30, the measure will be effective retroactive to January 1, 2013.
REALTORS® should always encourage their clients to consult their own tax professionals on their own individual tax situation.