Tax Relief Bill to Help Troubled California Homeowners

The California legislature passed a bill yesterday that could make a BIG difference in taxes owed to the state by recent homeowners who went through short sales or foreclosures. Unbeknownst to many of these homeowners, the state of California had not renewed legislation last year that used to allow short sale and foreclosure owners to avoid paying taxes on the canceled debt (the difference between what they owed on their mortgage and what the actual payoff was to the lender) in most situations, leaving many people with huge tax debts they were unable to pay.

The Mortgage Debt Relief Forgiveness Act passed by Congress in 2007 allows homeowners to avoid being taxed federally on canceled debt in most short sale, foreclosure and loan modification situations. The new California law will mirror the federal law and will last through 2012. The Governor is expected to sign the bill.

This news lifts a large burden off the shoulders of many homeowners who have lost their homes, and hopefully will allow them to get on rebuilding their lives after losing their homes.