California short sale sellers not liable for federal or state income tax per IRS and CA FTB!!!

Is this a Christmas or Thanksgivingukkah Miracle?? The IRS and the California Franchise Tax Board have formally declared that California home sellers are NOT liable for federal or state income tax on short sales.

Really!? The California Association of Realtors and the National Association of Realtors been lobbying the state and federal government really hard to extend provisions of legislation from 2007 to protect folks who sold a home via a short sale from having to pay income tax on "forgiven debt" -- aka tax on your loss from a short sale.

I first caught wind of this last month via some communication from the California Association of Realtors when the IRS made a written determination that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. C.A.R. then aggressively started lobbying the Franchise Tax Board to issue similar written clarification. And today they did!!

You can read C.A.R.'s press release here. Please note short sale sellers -- please continue to get tax and legal advice when entering into a short sale...but this is great news that many people have been waiting for!