Finally! California State Forgives Phantom "Income"

Reblogger Lottie Kendall
Real Estate Agent with Today | Sotheby's International Realty CA BRE# 01215160

My colleague, Regina Brown, from San Luis Obispo, has given us a clear, concise report of the recent change in California law -- forgiven home debt is now treated by the state in a similar fashion to IRS law.

 

Original content by Regina P. Brown BRE 01895773

California won't tax forgiven home debt

Governor Schwarzenegger on Monday signed SB 401 (Wolk) into law providing distressed homeowners with state tax exemption on debt forgiven in a short sale, foreclosure, or loan modification.

MAKING SENSE OF THE STORY FOR CONSUMERS

  • SB 401 generally aligns California's treatment of taxes on forgiven mortgage debt with that of federal law.  For debt forgiven on a loan secured by a "qualified principal residence," borrowers now will be exempt from both federal and state income tax consequences.  Previously, California homeowners generally were exempt from owing federal taxes on the forgiven mortgage debt, but still were required to pay California taxes on the so-called "phantom income."
  • Qualified principal residence indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence, including both first and second mortgages.  It also includes refinance loans to the extent the funds were used to payoff a previous loan that would have qualified under these guidelines.
  • The tax relief applies to debts discharged from 2009 through 2012.  Californians who already have 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) still may be exempt from paying taxes on forgiven mortgage debt under other provisions.  Most notably, bankrupt taxpayers 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.

To read the full story, please click here.

Regina P. Brown

 

Regina P. Brown
Broker, Realtor®, e-Pro
Join & post to my NEW ActiveRain group at http://activerain.com/groups/virtualoffice

     

Text copyright © 2010 R.P. Brown, All Rights Reserved

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Rainmaker
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Regina P. Brown
California Coast & Country Homes, Inc. - San Luis Obispo, CA
e-Pro Realtor

Hi Lottie, thanks for the re-blog.  This is great news for Californians!!!

Apr 20, 2010 11:23 AM #1
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Cari Anderson
Danville, CA

Lottie: thanks for the re-blog - I am going to send the word out to all my partners and clients. Have a great day!

Apr 20, 2010 12:37 PM #2
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Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
Broker/Owner, Integrity Real Estate Services -IDAB

It's wonderful to hav clarification on laws and changes.  A great service by re-blogging and a hat-tip to Cani for writing it.

Apr 20, 2010 09:32 PM #3
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Lottie Kendall
Today | Sotheby's International Realty - San Carlos, CA
Serving San Mateo County and San Francisco

Hi all -- Yes, Regina wrote a clear and concise recap of the new law. I like to re-blog this type of article since it's important to spread the word.

Apr 21, 2010 11:20 AM #4
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Rainmaker
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Lottie Kendall

Serving San Mateo County and San Francisco
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