CA State Tax Relief for Homeowners Doing Short Sales (4/13/10 Update)

(04/13/2010) Governor Schwarzenegger on Monday signed SB 401 (Wolk), a measure providing tax relief on mortgage debt forgiven in a short sale, foreclosure, or loan modification.

Previously, California homeowners were exempt from owing federal taxes on the forgiven mortgage debt, but still were required to pay California taxes on the so-called "phantom income." This bill now aligns the state’s tax code with that of the federal government and has become law in time for people to take advantage of it by the April 15 deadline for filing tax returns.

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