Is Calif. Short Seller debt forgiveness in peril?

Short Sale Debt Forgiveness 250x200Gov. Schwarzenegger vetoed a bill last week which would have been similar to the federal government’s tax forgiveness on “phantom debt” for short sellers. His reason for the veto was the bill contained an unrelated provision regarding tax refunds for the state’s largest businesses.

Gov. Schwarzenegger is supporting the banning of taxation of mortgage debt forgiveness and called for the legislature to send him a bill to provide tax forgiveness before the April 15th tax deadline.

According to the California Association of Realtors, there are currently two stand alone measures, AB 1779 (Niello) and SB 14 (R. Calderon and L. Correa) of the Sixth Extraordinary Session, that would fully conform to the federal rule extending “phantom” income debt forgiveness through December 31, 2012.

We have been holding our breath that the bill would be passed as it substantially impacts the 1099’s issued by the Short Selling Banks. What underwater homeowner has money to pay taxes on debt forgiveness??

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