Uh Oh...Tax Problem in California for Short Sales/Foreclosures

I was listening to the news last night driving home at 11:00 and heard that the State of California has not approved a legislative bill allowing you to not pay taxes on the deficiency amount. Even though President Bush signed this into law (December 17th) regarding your Federal Taxes, the State of California has not passed this law regarding state taxes.

According to the state, you must claim this as income and pay taxes on the amount through the state...at least for now. There is a bill working its way through the legislature to waive this, however we don't know when it will pass, or if it will even be backdated. This could be devastating to those who have lost their homes due to foreclosure, or those who had to short sell it in 2007.

So please, if you have done a short sale or had your home foreclosed on, please check with your tax advisor to see what your tax liability may be.