The Internal Revenue Service recently clarified that California homeowners would not be liable for federal income tax on debt forgiven in a short sale, even after the expiration of the federal Mortgage Forgiveness Debt Relief Act of 2007 at the end of this year.

Now the California Franchise Tax Board has issued a similar clarification letting homeowners off the hook for state income taxes on “phantom income” from debt written off in a short sale, a move that will affect tens of thousands of distressed home sellers in the Golden State, according to the California Association of Realtors.

“We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California,” said CAR President Kevin Brown in a statement.

Distressed California homeowners, Brown said, “can now avoid foreclosure or bankruptcy and can opt for a short sale instead,” without incurring federal and state tax liability. Source: CAR

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Time is running out to secure your Connect Now tickets at the lowest price. Don't miss out on a chance to grow yourself and your business.Learn More×
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription