No Short Sale Taxes! Mortgage Debt Relief Extended To California Distressed Homeowners
Foreclosure, Short Sale and Loan Mod Tax Relief Given
Sacramento Short Sale Specialist And Certified Short Sale Expert Reports California Mortgage Debt Relief Act Signed.
Gov. Schwarzenegger signs new California law providing a tax break to homeowners who’s debt was forgiven through a foreclosure, short sale, or loan modification.
We knew he was going to sign it, when they finally got it to him. It’s about time! This new bill puts California pretty much in compliance with the Federal Mortgage Debt Relief Act of 2007 that pres. Bush signed Dec. 27, 2007. So it is clear: There is no mortgage debt tax in California. So finally it is clear that for 2009, there is no California foreclosure, short sales or loan modification tax. (as long as it is homeowner occupied and the homeowner is insolvent).
Need Clarification on your situation? Not sure of your options? Are you struggling or about to be struggling? Contact us today at Forth Hoyt’s Sacramento Short Sale Center.
A great article from DSNews:
A newly enacted California law provides a tax break to borrowers whose mortgage debt was forgiven through a foreclosure, short sale, or loan modification. The bill (SB 401) landed on Gov. Schwarzenegger’s desk and he inked his approval just days before the April 15th tax deadline.
According to a statement from the governor’s office, the law provides much-needed tax relief to homeowners who have already lost their homes and cannot afford to pay thousands of dollars in taxes simply because the mortgage company forgave the remainder of the loan.
In addition, Californians 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 mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it’s about time we gave these folks a helping hand,” said state Sen. Ron Calderon (D-Montebello).
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 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.
There are some exceptions though. Debt forgiveness on a second home mortgage, business property, or investment property does not qualify for exclusion under the new state law. Refinance loans that allow cash-out equity are also excluded.
The state’s Franchise Tax Board says the new mortgage debt provision will cost California about $34 million in tax revenue over the next three years. The board also estimates that approximately 100,000 people will benefit from the tax break between now and the 2012 tax year.