California and the Mortgage Forgiveness Debt Relief Act

Two things to take note of in regards to the Mortgage Forgiveness Debt Relief Act for Californians…

1. As you know, the bill includes a provision to extend the Mortgage Forgiveness Debt Relief Act, which will for one more year exempt the taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification (including any principal reduction).  While debt relief has been extended at the federal level, the California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now.

2. Capital gains rates will remain at 15 percent for those earning less than $400,000 (individual) and $450,000 (joint).   Gains above those income levels will be taxed at 20 percent.  Gains on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 taxpayers filing jointly.

It seems California is still on the fence as to whether or not they will extend the Mortgage Forgiveness Debt Relief Act. It will be interesting to see what lies ahead!