California Offers Taxpayers Relief on Home Mortgage Debt Forgiveness
The state of California offers tax relief on debt forgiveness, in line with federal law.
Most affected California taxpayers can exclude forgiven debt of up to $500,000 ( for all but married/RDP filing separately who are limited to $250,000) from their 2010 California taxable income.
The law offers a tax break similar to that already available to taxpayers on their federal taxes. California had offered debt forgiveness tax relief along with the federal government for 2007 and 2008, but now has extended and enhanced it for tax years 2009 through 2012.
Lenders “forgive” or cancel mortgage debt when they cannot recover what they are owed. The amount forgiven is generally the difference between what is owed on the mortgage and the home’s value on the open market.
Debt forgiveness typically occurs when people lose their homes in foreclosure, abandon them, give back them to their lenders, or have their debt modified by the lenders.
Prior to 2007, forgiven mortgage debt was usually counted as taxable income to the mortgage borrower.
For more information about the law, see Mortgage Forgiveness Debt Relief Extended on the California Franchise Tax Board website.
