The California Association just announced that it received final confirmation from the Board of Equalization that California homeowners who lose their house in a short sale are NOT subject to state income tax liability on the debt forgiveness. This is fantastic news for anyone who has already gone through the process or anyone thinking of letting their upside-down mortgage go but are concerned with the tax liability that might follow.
Anyone who has actually sat down with an attorney and discussed the consequences understands the implications of this exciting news. I have talked to hundreds of people and analyzed their unique situations and for some the IRS and state tax issues they faced felt like rubbing salt into a large wound. Sorry for the analogy but it’s really that bad.
Well this news is what I would call “COMMON SENSE” finally from the bureaucrats!
I should add that the IRS already clarified that the concept of “cancellation of debt” income to short sellers in California is NOT taxable. California has some of the best laws in the country for upside-down homeowners. It’s a little too complicated for this article and everyone’s situation is unique and different but let me say this – this is GREAT news for California homeowners. The rationale is a little complicated but the short explanation is that they finally confirmed that short sales in California create a nonrecourse scenario which equates to no cancellation of debt and therefore no income tax owed.
“Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year” said C.A.R. President Kevin Brown.
You really need to talk to an expert in this area and I suggest you do not start your inquiry with a real estate agent. You need a free legal consultation and you need an expert lawyer on your team protecting you throughout the process. The banks have lawyers on their team and you need one too. The banks are very dysfunctional and continue to amaze me at how they can screw up even easy things in trying to help homeowners. As a matter of fact I currently have a few lawsuits based on unbelievable things that were done to a few of my clients. The fact that I can and will pursue homeowners rights makes the banks at least pay a little more attention to me when I contact them for some homeowner relief.
I always give a free consultation and most times can help you at no cost to you. I have created a process where the banks and the buyers pay all costs and fees in a short sale and you don’t pay me anything. And quite often you can get $3,000.00 in moving costs at the close of escrow. So now you can unload a mortgage that doesn’t make sense and not pay any costs and NOT pay any taxes!
If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation. You can call me at 877.442.4577 or send me an email at firstname.lastname@example.org or just visit my website www.upsidedownca.com.
California Attorney and
licensed Real Estate Broker