patrick.net

It looks, based on the debt thresholds, like the Bay Area could get hit with a lot of this with its bubblicious prices. However, I sort of doubt that it will happen. The loopholes and exemptions from this aren't completely spelled-out, but if this is like any other tax code, way too many people will be able to walk right around it. Besides, this seems like something that the NAr/CAr would have lobbied against if it was actually going to hit any significant number of people since it could further scare buyers into thinking that buying a house is something to take seriously.

Well, it looks like you won't have to pay federal income tax on a foreclosure in CA. From the IRS website:
"Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
- Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences."

Now, as far as CA taxes are concerned, it looks like the limits in the OP's link are where the cut-offs lie. What is the difference between the two bullet points under, "Taxable years 2009 through 2012", other than the amounts? What is, "principal residence indebtedness" and how could one be taxed on it (versus the next bullet that mentions "debt relief")?

This thread was forked from The Consequence hammer is coming by Superjet.

#housing