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Finally CA Gets there act togther in regards to Short Sale Taxation

13 Apr 2010 · Kurt

NO MORE STATE TAX ON FORGIVEN DEBT

     Distressed homeowners no longer have to pay California state short sale taxation, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 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.  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.

     “Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

     The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

 

 

Kurt Wannebo “Broker Kurt”
San Diego Real Estate and Investments
www.sdreai.com


Kurt Wannebo

California / San Diego Real Estate & Investments / Broker Kurt · 3636 Nobel Drive · Suite 170 · San Diego, CA 92122

Phone: 1.888.473.7324 · 858-412-5541 · Email: info@sdreai.com

CalBRE#: 01468255

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