Accounting: State OKs tax debt relief for struggling homeowners

Jannicelli leaves Moss Adams to join Burr PilgerCalifornia homeowners no longer have to pay state income tax on debt forgiven in a short sale, foreclosure or loan modification, aligning the state with the federal law.

Senate Bill 401 says that for debt forgiven on a loan secured by a "qualified principal residence," borrowers are exempt from both federal and state income tax consequences.

Federal exemption is for debt up to $2 million, and the California exemption is for debt up to $800,000 and forgiven debt up to $500,000.

The definition of "qualified principal residence" indebtedness is debt incurred in acquiring, constructing or substantially improving a principal residence.

Both first and second trust deeds are covered.

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