Monday, April 11, 2011

California's Mortgage Debt forgiveness slated to expire next year... Its to time to play strategic defaults and short sales

Mortgage Forgiveness Debt Relief Extended
Mortgage Forgiveness Debt Relief Extended - Updated 04/13/10

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.
New law - Taxable years 2009 through 2012

California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges that occurred in tax years 2007 through December 31, 2012. The amount of qualifying indebtedness is less than the federal amount and California imposes a state-only limitation on the total amount of relief excluded from gross income. The following summarizes the differences between the federal and California provisions. Federal provision applies to discharges occurring in 2007 through 2012, and:

Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
Does not limit the debt relief amount; it only limits the indebtedness amount used to calculate the debt relief amount.
See the federal law Mortgage Forgiveness Debt Relief Act and Debt Cancellation for more information.

California provision applies to discharges that occurred in 2007 through 2012, and: