Important Mortgage Debt Forgiveness Information for California Residents. California does not conform to the recently enacted federal Mortgage Forgiveness Debt Relief Act of 2007 that allows taxpayers to exclude the discharge of qualified principal residence indebtedness from income. For federal purposes, this applies to discharges occurring on or after January 1, 2007 and before January 1, 2010. There is pending California legislation, Assembly Bill 1918, as introduced, which would provide full conformity to Section 2 of the Mortgage Forgiveness Debt Relief Act of 2007 and Senate Bill 1055, as introduced, which would provide modified conformity to Section 2 of the Mortgage Forgiveness Debt Relief Act of 2007.
Taxpayers affected by mortgage debt forgiveness may want to monitor the status of AB 1918 and SB1055 and delay filing if possible until after a decision is made on either of these bills. To monitor the progress of either bill go to leginfo.ca.gov/bilinfo/. To review Franchise Tax Board’s analysis of SB 1055 go to ftb.ca.gov/law/legis/07_08bills/SB1055_010708.pdf. An analysis of AB 1918 is not available at this time. We will provide a link to this bill when it is available.
Under current law, any amount excluded under the federal legislation will need to be included in California taxable income and reported as an adjustment on Schedule CA (540 or 540NR) line 21f, column C.
If a bill is enacted that applies for 2007, affected taxpayers that have already filed and included discharge of principal residence indebtedness as income for California purposes will need to file an amended return and use Schedule CA (540 or 540NR) line 21f, column B to make adjustments to appropriately exclude all or a portion of it.
We will provide further information on this website regarding any amended or enacted California legislation affecting the treatment of mortgage debt forgiveness.