CA Legislature Approves Bill Aligning State Tax Law with Feds on Short Sales
March 15, 2010 by admin · Leave a Comment
The CA state legislature approved a bill that would exclude homeowners who do a real estate short sale from having to pay taxes on the debt forgiveness, aligning state law with the federal Mortgage Tax Debt Forgiveness Act.
CA had a similar law on the books up until the end of 2008, at which point the law expired. Since then, some tax experts have said that the debt forgiveness in a real estate short sale would be taxed at the CA state level as ordinary income, while others have argued that due to CA Revenue & Taxation Code 17131 – which states that when there is no applicable state law for a specific tax situation, state tax law tracks with federal tax law – that borrowers would not be taxed on short sales as long as their situation conformed with the dictates of the federal law.
This measure clears up any confusion regarding whether CA homeowners will have to pay taxes on the debt forgiveness resulting from real estate short sales.
The Senate approved the bill on March 11th 2010. It will now go to Gov. Arnold Schwarzenegger.
