Michael Gray, CPA's

April 22, 2010
© 2010 by Michael C. Gray
ISSN 1930-0387

A monthly report focusing on tax issues for the homeowner and real estate investor.

California extends debt cancellation tax relief for homeowners.

California has enacted relief legislation for cancellation of mortgage debt relating to the acquisition of a principal residence.

Governor Schwartzenegger signed SB 401(Wolk), the Conformity Act of 2010, on April 12, 2010, while we tax return preparers were busy finishing income tax returns and extension forms. Effective for taxable years 2009 through 2012, the maximum qualified principal residence indebtedness eligible for relief is $400,000 for taxpayers who file as married or registered domestic partners filing a separate return and $800,000 for taxpayers who file joint returns, single persons, head of household and qualifying widow or widower (other individual taxpayers).

The debt relief that can be excluded from taxable income is limited to $250,000 for married or registered domestic partners filing a separate return and $500,000 for other individual taxpayers.

Note that the amount that can be excluded from taxable income was increased compared to the amounts that could be excluded for 2007 or 2008, which was $125,000 for married or registered domestic partners filing a separate return and $250,000 for other individual taxpayers.

Those taxpayers who now qualify for relief for 2009 and who filed their 2009 California individual income tax returns should file amended returns, Form 540X, including an amended Schedule CA (540/540NR). When filing Form 540X, write "Mortgage Debt Relief" in red across the top of page one of Form 540X.

There is no California equivalent to Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Use the Federal form marked "California" at the top.

If you want our help to prepare a California amended income tax return, call Dawn Siemer on Mondays, Wednesdays or Fridays to make at appointment at 408-918-3162.

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