Home Front

A blog about the economy and the Sacramento-area real estate market.

April 8, 2010
There will be no state taxes on forgiven mortgage debt
 Finally, thousands of people across the Sacramento region and all of California can relax a little. They no longer face a double whammy of losing their homes - and then a big state tax bill on the forgiven debt.

 Not long ago state lawmakers passed legislation that will exempt borrowers who lost their homes to foreclosure or short sales in 2009, or got certain types of loan modifications from state taxes that can run into thousands of dollars. And spokesman Mike Naple for Gov. Arnold Schwarzenegger said he will sign it.

Reaction came pretty fast on the Home Front.

Sacramentan Debbie Wong , who sold her Elk Grove condo last year in a short sale, said she got a recent state tax bill for $7,500.The forgiven debt on her sale gave her a state taxable income of $108,000 when her salary was $13,000, she said. She's relieved.

So is Sara Sara Palasch, who sold her Bakersfield house through a short sale last year and lives in Georgia now. Weeks ago, she got a state tax bill for $10,500.

The bill, SB401 by Sen. Lois Wolk, D-Davis, passed 47-24 in the Assembly and 24-9 in the Senate.
 
 We are preparing a detailed primer on the bill and how it affects people for tomorrow's paper. In the meantime we asked the FTB what people should do now when filing their state taxes:
Here is the word from FTB directly:

  "Once the Governor signs this into law, California taxpayers will not have to do anything. If they qualify for federal relief on the mortgage debt forgiven, then they will also qualify for state income tax purposes. California Form 540 starts with federal adjusted gross income so there will be no adjustment necessary to properly reflect the state adjusted gross income amount for this issue."

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