Senate Bill 30 which is backed by the California Association of Realtors (C.A.R.) failed to move out of the appropriations committee. This means California homeowners who sold their homes in a short sale over the past eight months will be forced to pay state income taxes on money they never received if this bill does not pass. This is disappointing news for struggling homeowners. For more information: http://www.housingwire.com/articles/26640-short-sales-could-lose-their-appeal-in-california
Under the current law, when a lender forgives mortgage debt in a short sale, the seller must pay state income tax on the amount of debt forgiven.
The previous California exemption to this rule lapsed at the end of 2012, so forgiven mortgage debt on short sales is now considered taxable state income.