Tax exemption for homeowners in distress goes to governor

Prior to 12/20/2007 , if a homeowner who had a foreclosure, loan modification or short sale may actually have had the debt forgiven become a taxable event and had it be deemed income as far as the IRS was concerned.  Just what someone in that position needed.  The feds did take that nasty rule out of the IRS code in 2007 but California did not follow suit.  However, this may change soon.  Read on

The California Senate voted 21-15 on March 11th  to approve legislation that would prevent homeowners who have had a foreclosure, loan modification or short sale from being required to pay state income taxes on the debt forgiven.
The bill, SB32 (8X), by Sen. Lois Wolk (D-Davis) also makes other changes to the state tax law so it will conform with federal income tax law. It now goes to Gov. Schwarzenegger, who has 12 days to sign or veto the measure once it reaches his desk.
If signed by the governor, the law will become immediately effective. It is retroactive to include the 2009 tax year and the exemption on state taxation of forgiven mortgage debt would remain in force through 2012.