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Mortgage debt ‘forgiveness’ may mean a tax bill
SACRAMENTO January 14, 2008 10:48am 
• Would need action by Legislature • California law does not conform to new federal law Distressed California homeowners who have had all or part of their mortgage debts “forgiven” by lenders through foreclosure or negotiating a new loan could be slammed with a big tax bill, the state tax collector warns.
California does not automatically conform to the federal “Mortgage Forgiveness Debt Relief Act of 2007,” signed into law on Dec. 20, 2007.
In order for the provisions of this act to apply to California, the legislature must enact conforming legislation, the Franchise Tax Board says.
The “Mortgage Forgiveness Debt Relief Act of 2007,” was enacted to provide relief to families hit by the subprime mortgage market. Under California tax law, however, debt forgiven following mortgage foreclosure or renegotiation is considered income for tax purposes and may result in a tax liability for taxpayers.
There is pending California legislation, Senate Bill 1055, which will provide modified conformity to provisions of this federal legislation. Introduced by Sens. Michael Machado, D-Linden, and Lou Correa, D-Anaheim, the bill would provide that mortgage debt forgiveness is not included in California taxable income.
Taxpayers can check FTB’s Website at www.ftb.ca.gov under “law and legislation” for updates.
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