The American Taxpayers Relief Act of 2012 was signed into law on Jan. 2. The law includes a provision to extend the Mortgage Forgiveness Debt Relief Act, which will for one more year exempt the taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification (including any principal reduction). However, the California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now.
California Association of Realtors (C.A.R) recognizes this could impact short sales in California, and that’s why C.A.R. is sponsoring SB 30 (Calderon, D-Montebello). SB 30 will conform state law to the federal law passed earlier. Upon passage of SB 30, the measure will be effective retroactive to Jan. 1, 2013.