Struggling borrowers who persuade lenders to forgive part of their mortgage debt would get new tax relief under a bill, SB1055, on its way to the desk of Gov. Arnold Schwarzenegger.
The bill, by Sen. Mike Machado, D-Linden, copies the federal tax forgiveness approved late last year by Congress and President Bush. Machado's version applies to California state taxes.
The bill largely affects people who sell their homes in short sales, where the lender agrees to take less than owed to avoid the higher costs of foreclosing. Some lenders have also agreed to forgive some of what they're owed when restructuring or refinancing mortgages.
The bill applies only to debts forgiven on owner-occupied homes during the 2007 and 2008 tax years. It is not for investors. There is also a $250,000 cap on debt that can be exempted from taxes.
– Jim Wasserman
