Re-Post of Active Rain blog by Melissa Zavala.  Thank you Melissa for the information!  Bonnie Hart & David Lang

Mortgage Debt Relief in the State of California

The California Senate passed the California Association of Realtors®-sponsored tax relief bill without a single “no” vote on June 20, 2013. SB 30 protects homeowners from paying income tax on a short sale. As you may remember, one of the major successes Congress reached in the “fiscal cliff" negotiations late last year was the extension of the Mortgage Forgiveness Debt Relief Act for another year. The measure will continue to exempt taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction), or foreclosure.

Although debt relief was extended at the federal level, the state exemption for California expired at the end of 2012, so forgiven mortgage debt is still considered taxable state income in California. In order make state and federal law confirm, the California Association of Realtors® sponsored Senate Bill 30, so California homeowners on the brink of foreclosure could get much-needed debt relief. 

In the Senate Appropriations Committee, SB 30 was linked to SB 391 meaning that it cannot become law unless SB 391 is enacted. C.A.R. strongly opposes “linking” these two measures and will continue efforts to delink them. SB 30 is a “two year” bill and can be signed into law as late as April 14th of next year to protect taxpayers on their 2013 tax returns, which must be filed by April 15, 2014. Unfortunately, because of this link between SB 391 and SB 30, SB 30 has not yet become law. So, any seller that participates in short sale in California may be liable for state taxes on the forgiven debt. As such, short sale sellers should consult their accountant or CPA before preparing their taxes for 2013.

Melissa Zavala BROKER/REALTOR® ● CA BRE #01324959