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Kate Mccaffrey's Blog

By Kate McCaffrey | Agent in Alameda, CA

No More State Tax on Forgiven Debt For Distressed Homeowners - New Law Passed Yesterday!

Enacted into law on April 12th, distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  

According to the California Association Realtors, '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.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000, and forgiven debt up to $500,000." 

The tax breaks apply to debts discharged from 2009 through 2012.  

For more information about mortgage forgiveness tax consequences, go to California Tax Franchise Board's Mortgage Forgiveness Debt Relief Extended webpage.

The full information about this new Bill, Senate Bill 401, can be found at www.leginfo.ca.gov.

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