Tax and financial advice from the Silicon Valley expert.

California extends cancellation of debt tax relief for homeowners

On July 21, 2014, Governor Brown signed AB 1391, extending California’s exclusion for cancellation of debt income for a principal residence through December 31, 2013.

Previously, the exclusion expired December 31, 2012.

This change conforms California’s exclusion effective date to the federal exclusion, which also expired on December 31, 2013. This item is one of the extenders that the U.S. Congress will consider, probably after elections are over in November, 2014.

Remember the limit for qualified indebtedness is much lower under California’s exclusion than the federal limit. It’s $800,000 for taxpayers who file joint returns, single persons, heads of households, and qualifying widows or widowers, and $400,000 for married persons or registered domestic partners who file separate returns.

The federal limit is $2,000,000 for most taxpayers and $1,000,0000 for married persons who file separate income tax returns.

California taxpayers who reported income from cancellation of indebtedness on their 2013 individual income tax returns should determine whether they can reduce their California tax by filing an amended income tax return.

Tax and financial advice from the Silicon Valley expert.