The California Legislature just passed SB401, which will bring the State’s laws regarding tax liability for forgiven mortgage debt in line with Federal rules. The Governor says he’ll sign the bill.
Up to now, home owners in Orange County, and all of California, that completed a Short Sale of their home faced the prospect of a 1099 from the lender for the difference between what they owed and what the lender received as a payoff. That income is exempt from Federal Income Tax for those who qualify, but not from Sate Income Tax in California. Once the new law is signed into law, California’s calculation of adjusted gross income will be based on the Federal adjusted gross income.
Originally Posted at Orange County Real Estate
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