Great News for Underwater Home Owners in California

Great tax relief news for California home owners considering a short sale. The national media has it all WRONG. I just read an article published in Realtor Mag which is a publication put out by the National Association of Realtors (a link to this article below). The headline was “Homeowners Think Twice About Short Sales”. The article painted a gloom and doom scenario explaining the reason Short Sales have dropped. It put most of the blame on the fact that Congress hasn’t passed an extension of the Mortgage Debt Relief Act and therefore there will be an “increase in taxes borrowers will now have to pay on forgiven debt”.


NOT IN CALIFORNIA. I repeat – not in California. This article does not mention the huge California exception which misleads everyone in California reading the article. They are not the only ones. I daily seem to read articles which don’t properly explain the situation for California homeowners.


I will try to explain in the simplest terms why California homeowners have the best laws in the country and will most likely NOT owe any debt forgiveness income tax after a short sale. First let me state that there are other exceptions to this crazy tax the IRS and state taxing bureaus want people to pay. Bankruptcy and insolvency are exceptions but I will not get into those exceptions in this article due to space constraints – and I don’t want to bore you to death.


In December 2013 the California Association of Realtors and Senator Barbara Boxer announced in a press release that the IRS and the California Franchise Tax Board (California’s equivalent to the IRS) both have agreed that a short sale in California is a non-recourse event and therefore does not create so-called “cancellation of debt” income to underwater home sellers for income tax purposes. This is GREAT news! No other state that I know of has such great laws protecting underwater homeowners.


The national media seems to ignore this when doing their reporting most likely because it is a very complicated subject and it’s easier to paint with a broad brush. I have even talked to tax preparers who still haven’t received the great tax news regarding California short sales. Needless to say you should talk to an expert in this area and do NOT accept legal advice from a realtor. Realtors are not allowed to give legal advice and when dealing with a short sale it’s almost ALL legal.


Most homeowners are very concerned about things such as: what if my bank sues me, can they garnish my paychecks, what about my retirement accounts, will I ever be able to buy another house, etc…


If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation and if I help you with your short sale you pay me nothing. You can call me at 916.442.6400 or send me an email at