Important Update on Status of California Short Sale Tax Issue

I wrote last week that the federal tax exemption for mortgage debt forgiveness had been extended for one year as part of the “fiscal cliff” settlement between Congress and the White House.

  • California’s Homeowners Exemption has Expired

At that time, I also wrote that the California tax exemption expired on December 31, 2012, without having been extended by the state legislature.  Consequently, mortgage debt forgiveness is currently subject to California state income tax.

  • Senate Bill Introduced to Reinstate the California Exemption

To remedy this inconsistency between federal and state tax law, the California Association of Realtors is sponsoring Senate Bill 30 (Calderon, D-Montebello).  SB 30 will conform state law to the federal law passed last week.  Upon passage of SB 30, the measure as currently drafted will be effective retroactive to Jan. 1, 2013.

  • Contact Your Local State Representative

If you believe the state tax exemption should be reinstated, contact your local state senator and ask that he/she support SB 30.

I will report further as the bill moves its way through the legislative process.