Governor Schwarzenegger on Monday signed SB 401 (Wolk), a measure
providing tax relief on mortgage debt forgiven in a short sale,
foreclosure, or loan modification.
Previously, California homeowners were exempt from owing federal taxes on
the forgiven mortgage debt, but still were required to pay California taxes
on the so-called "phantom income." This bill now aligns the state’s tax
code with that of the federal government and has become law
in time for people to take advantage of it by the April 15 deadline for
filing tax returns.