| California state income tax on forgiven debt | | | | with a refinance loan to the extent that that fund |
| resulting from a short sale, foreclosure, or loan | | | | from said loan were used to payoff a previous |
| modification will no longer be imposed on | | | | loan that would have also qualified under Senate |
| homeowners in California. Senate Bill 401 makes | | | | Bill 401's guidelines. |
| California's tax treatment of mortgage debt relief | | | | These "tax breaks" are applicable to debts that |
| income the same as federal law. Be advised, | | | | are discharged from 2009 through 2012. |
| however, that only the debt stemming from the | | | | Californians who have already filed their 2009 tax |
| loan secured by a "qualified principal residence," will | | | | returns may claim the exemption by filing a Form |
| be exempt from both federal and state income | | | | 540X amendment. Taxpayers who do not qualify |
| tax consequences. While the federal exemption | | | | for the exemptions (for example, those |
| amount is up to $2 million, the California | | | | homeowners with second or third homes and/or |
| exemption is up to $800,000 and forgiven debt | | | | rental property or properties) may potentially also |
| up to $500,000. | | | | claim an exemption, through other provisions in |
| Now, I know you're thinking... what is a "Qualified | | | | the law, however. |
| principal residence." This means that only the debt | | | | A very important thing to note is that taxpayers |
| incurred in connection with acquiring, constructing, | | | | who are bankrupt are exempt from debt relief |
| or substantially improving a principal residence is | | | | income tax. This means, that they have no liability. |
| the subject of this legislation. Principal residences | | | | Also, taxpayers who are insolvent and have no |
| are where you actually reside, receive mail and | | | | assets may also claim exemption from debt relief |
| inhabit for all intents and purposes. This new debt | | | | income tax to the extent their current liabilities |
| forgiveness exemption will include first and second | | | | exceed current assets. |
| trust deeds, as well as debt incurred in connection | | | | |