California’s partial exclusion for cancellation of debt income relating to a principal residence expired on December 31, 2013.
AB 99 (Perea) would have extended the exclusion to December 31, 2014.
Governor Brown vetoed the extension.
For some details about cancellation of debt for real estate, see my article, Tax Consequences of a Short Sales of Real Estate vs. Foreclosure http://realestateinvestingtax.com/shortsale.shtml.