Most everyone who walked away from a personal residence, engineered a short sale, or otherwise lost their home during 2009 thinks that this batty idea that forgiveness of debt equals taxable income doesn't apply to them.
And, for federal purposes it probably does not. But keep this admonition from the Californicate Franchise Tax Board in mind if you are a California resident:
For tax year 2009, California does not conform to the federal Mortgage Forgiveness Debt Relief Act which applies to discharges occurring in 2007 through 2012. Amounts excluded for federal income tax purposes must be added to income for California tax purposes.
Legislation to prevent the state from taxing forgiven mortgage debt cleared the state Assembly early Monday, offering potential tax relief to thousands of Californians who lost their homes in 2009.
But, don't get your hopes up, Girls, the Governator has indicated that he will veto the bill (for reasons not connected to mortgage debt forgiveness).
Whole thing here.
TWC is thinking that if you lost your personal residence in 2009, you may want to delay filing until this is resolved. Nothing to lose by waiting until April 14th.
As I gaze into my crystal ball, I suspect that tax relief will be forthcoming and it will be retroactively applied to all of 2009. That isn't a promise and you shouldn't file a return based upon the musings of a tax guy who moonlights as a wino.
Keep in mind that the federal tax relief does NOT apply to anything except your personal residence. If you lost an apartment building, commercial storefront, business equipment, a vacation home, and most other kinds of debt relief, you're on the hook, tax-wise, to the extent of the debt forgiven.
Although I can follow the convoluted logic process, it seems illogical that welshing on a debt could possibly result in taxable income.
Tip of the glass to Mrs TWC
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