Mortgage Debt Relief at last!

The State of California announced yesterday, just days before the income tax filing deadline, that this year, the Franchise Tax Board will NOT be meaner than the IRS. "On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013."

 

Although the press release did not mention the grass roots efforts of affected taxpayers, these tenacious groups deserve a medal.  Mortgage debt relief is considered income most of the time because a person who borrows money from the bank, and does not pay it all back is said to have income from that transaction.  For example, say you borrow $500,000 and buy a house with it.  You stop making your payments, and the house that was put up as collateral is seized and sold (foreclosed).  After the auction, the bank clears only $300,000.  The $200,000 shortfall is money you received and spent, so according to our government's income taxers you "made" $200,000.  Congress told the IRS not to tax that debt relief income if the collateral was a citizen's home - their primary residence.  Even the IRS lightened up on Americans who lost their homes.  Until about 48 hours ago, California intended to collect income taxes from its less fortunate citizens who had lost their homes to foreclosure in 2009.  Took them long enough!