California Waives State Taxes on Forgiven Mortgage Debt

Californian waives state taxes on forgiven mortgage debt for those who have sold their homes as short sales are allowed to exclude from taxable income the amount that was still owed to the mortgage company. The legislation also applies to homeowners who have received debt-reducing loan modifications.

The new law allows most taxpayers to exclude canceled mortgage debt income of up to $500,000 on their principal residence, or up to $250,000 for married individuals filing separately. It applies to debt forgiveness in 2009 through 2012.  The law excludes second homes, business and investment property.

The law brings California state tax policy largely in line with the federal Mortgage Forgiveness Debt Relief Act of 2007, which is in effect through the tax year 2012.

Excerpt taken from DS News by Carrie Bay