Sunday, October 12, 2008

California Mortgage Forgiveness Debt Relief Law

Selling Apples

Mortgage Forgiveness Debt Relief Law

The California mortgage forgiveness debt relief law is effective immediately. It is similar to federal law, but with important differences.

The California law covers qualified debt forgiven in 2007 and 2008, and it:

  • Limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
  • Limits debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately.

The federal law covers qualified debt forgiven from 2007 through 2012,1 and it:

  • Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
  • Does not limit the debt relief amount: it only limits the indebtedness amount used to calculate the debt relief amount.

Claiming mortgage forgiveness debt relief for a previously filed 2007 tax return

If you already filed your 2007 tax return, file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief.

If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).

If the amount of debt relief for federal purposes is the same as the California limit, no adjustment is necessary on Schedule CA (540/540NR). On Form 540X, simply enter on line 2e, column (B), the amount originally entered on Schedule CA (540/540NR) line 21f, column (C).

Claiming mortgage forgiveness debt relief on an original 2007 or 2008 tax return

You can file for debt relief on your original 2007 or 2008 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.

If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).

If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR).

You must include a copy of your federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) with your original California tax return.







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Stephen Martinez E.A.

Tax Office



1 comment:

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thanks once again.