SB 401, introduced by California Senator Wolk, has been signed into law on April 12 by Governor Schwarzenegger. The legislation allows taxpayers of owner-occupied homes to immediately exclude from their 2009 through 2012 income tax returns the amount of mortgage debt forgiven by the lender in a short sale.
California law used to conform to federal law, but that expired at the end of 2008, leaving many former homeowners who sold through a short sale on the hook for taxes in 2009.
The new law is similar to the federal Mortgage Forgiveness Debt Relief Act, which allows an exemption for principal residences but the amounts for California are slightly different.
If you have already filed your 2009 tax return, like most of us by April 13th, you may need to file Form 540X, Amended Individual Income Tax Return. The state says, if the amount of debt relief for federal purposes was the same as or less than the California limit, you do not need to amend your tax return.
If the amount of debt relief for federal purposes is the same as or less than the California limit(s), an adjustment to income is no longer necessary on Schedule CA (540/540NR). On Form 540X, simply enter on line 2e, column B, the amount originally entered on Schedule CA (540/540NR) line 21f, column C.
When filing Form 540X, write "Mortgage Debt Relief" in red across the top of your amended tax return.
For more information, go to Mortgage Forgiveness Debt Relief Extended.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
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