SB 1055 California State Tax Relief Applied To Forgiven Mortgage Debt

The big news on everybody’s radar lately was the $700 billion “Rescue Plan,” which was vetoed by the House of Representatives yesterday and sent back to be re-drafted. Many on “Main Street” oppose to the bail out of Wall Street with tax payer’s money, while others see the “bail out” as a necessary evil that could possibly help stabilized the US economy. Meanwhile, there was another type of “rescue” that unfolded in Sacramento last Thursday.

[Update April 12, 2010: CA Governor signed bill SB 401 which will eliminate state taxes on forgiven mortgage debt from 2009 through the end of 2012 - more information below]

Disclaimer: If you require specific tax advice, you should contact a professional CPA. This information is intended to provide general information and it is not substitute for individual tax advice.

Prior to the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648), many homeowners who sold their properties as short sales or lost their homes in foreclosure could’ve been on the hook with the IRS. After HR 3648 passed into law on December 2007, the tax liability was eased on struggling homeowners but not without some necessary restrictions of course.

Californians, however, were not completely exempt from any tax liabilities incurred in a short sale or foreclosure because we are also subject to California state tax laws. In order to put California tax laws regarding mortgage debt forgiveness in line with the changes made by HR 3648 to federal tax laws, Gov. Arnold Schwarzenegger signed bill SB 1055 into law this past Thursday.

Though the Senate Bill 1055 now conforms to the federal Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648), it has a difference that may need to be revised in the near future. SB 1055 will only cover discharges from January 1, 2007 to December 31, 2008 in contrast to HR 3648 which covers discharges from January 1, 2007 to December 31, 2009. [Update April 12, 2010:] SB 401 which will eliminate state taxes on forgiven mortgage debt from 2009 through the end of 2012.

Homeowners who qualified and have already filed and included discharge of principal residence indebtedness as income for California purposes may need to file an amended or corrected state income tax form. Consult with a qualified CPA for specific details of your situation; this is not to be regarded as tax advice.

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September 30th, 2008 · Filed Under Foreclosure-Short Sale Information, Loan Modifications

Comments

6 Responses to “SB 1055 California State Tax Relief Applied To Forgiven Mortgage Debt”

  1. Tax Relief Attorney on October 18th, 2009 5:52 AM

    Always make sure you work with a California CPA. The advice and knowledge is priceless. Really nice and informative site you have here.

  2. Ney on October 20th, 2009 7:45 AM

    Thanks Mr Tax Relief Attorney

  3. Laura Borbon on March 9th, 2010 3:18 PM

    Greetings Mr. Tax Relief Attorney!

    I am a realtor for Century 21 Excellence, California. I’ve heard throught several sources that the Mortage Debt Relief Act of January 08- December 09 had been extended to until 2012?

    Is this information correct? If so, where can I verify this?

    I thank you in advance for your prompt response & guidance!

    Best regards,

  4. Ney on March 15th, 2010 7:38 AM

    Laura,

    In this same article that talks about SB 1055, you will find the link to the article detailing the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648). On that article you will also find that this tax relief act was extended through 2012 by Emergency Economic Stabilization Act of 2008 H.R. 1424.

    So to answer you question; yes, that information is correct.

  5. Debbie on March 19th, 2010 9:07 PM

    So is California going to pass a mortgage forgiveness act for 2009?

  6. Ney on March 22nd, 2010 7:41 AM

    Debbie,

    Our beloved Governor Swarchenegger sent the last bill back to the legislature because it contained measures for businesses that he did not like. The bill is to be revised and stripped of unnecessary stuff and mainly contain the tax relief for Californians. It is expected to be revised and passed before April 15th but I would not hold my breath. If it does get approved after April 15th, Californians may need to file an extension or file an amendment.

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