More Good News in California!

Well, as predicted here a few days ago, the state of California has enacted a law allowing homeowners to avoid income tax liability for forgiven debt that relates to foreclosures and short sales. SB401 closely aligns California property situations to a similar Federal law, although for different amounts. Under the new California law, forgiven debt up to $500,000 of an original loan of a max of $800,000 on the taxpayer's qualified principal residence may avoid California income tax liability. Qualified principal residence debt refers to the taxpayer's debt used to acquire, build or "substantially" improve the principal residence. Both first and second mortgages are covered. Also covered are mortgages used to refinance the original loan if the refi was NOT used to take cash out of the property. In other words, that refi you did last year to pay for the family European vacation very likely will not qualify. Also, investment property and second homes are generally not covered. As everyone's situation is personally unique, you should check with your tax advisor for details and to be certain if you qualify.