Just in Time - Califiornia Legislature Acts
April 14, 2010
On April 12, 2010, Senate Bill 401 was enacted into law. This bill generally aligns California's tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by "a qualified Principal residence." borrowers will now be exempt from both federal and state income tax consequences. Prior to the enactment of this law, any seller who sold "short" (i.e. the amount of the mortgage debt was greater than the selling price), was liable to the State Franchise Tax Board for income taxation on the amount of debt that was "forgiven".
The federal government had extended the debt relief last year to continue from 2009 to 2012. The federal exemption is for indebtedness up to $2 million. However California is not quite so generous as there is a $500,000 limit on debt forgiveness.
Since short sellers are a significant category in our Inland Empire real estate market, this extension of the tax exemption will be beneficial. It seemed rather counterproductive to have upside down sellers be better off financially if they just let their property go to foreclosure rather than pay the income tax.
Let's hope now that lenders can speed up the short sale approval process.
On April 12, 2010, Senate Bill 401 was enacted into law. This bill generally aligns California's tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by "a qualified Principal residence." borrowers will now be exempt from both federal and state income tax consequences. Prior to the enactment of this law, any seller who sold "short" (i.e. the amount of the mortgage debt was greater than the selling price), was liable to the State Franchise Tax Board for income taxation on the amount of debt that was "forgiven".
The federal government had extended the debt relief last year to continue from 2009 to 2012. The federal exemption is for indebtedness up to $2 million. However California is not quite so generous as there is a $500,000 limit on debt forgiveness.
Since short sellers are a significant category in our Inland Empire real estate market, this extension of the tax exemption will be beneficial. It seemed rather counterproductive to have upside down sellers be better off financially if they just let their property go to foreclosure rather than pay the income tax.
Let's hope now that lenders can speed up the short sale approval process.
posted by shirley harry at 8:57 AM
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