Home foreclosures and the resulting banking mess it can lead to has money homeowners facing what is known as mortgage debt forgiveness. While it may sound like a good thing, many homeowners do not realize that mortgages debts, which are forgiven or cancelled may be counted as income and subject to taxation. This is especially true in California where a battle between the Governor and state lawmakers is heating up. Some homeowners caught in the subprime mortgage crisis were offered a helping hand, however, in the passage of The Mortgage Debt Forgiveness Debt Relief Act of 2007. The legislation allowed for a three year exception for debt forgiveness on home loans. Debts that are forgiven in connection with home foreclosure, and mortgage restructuring qualify for the relief. The law varies by state, and some place stricter provisions for mortgage forgiveness. In California, however, the laws on mortgage debt relief fall under state provision. Debt forgiveness occurring on or after January 01, 2009, no longer conforms to federal provision as non-taxable. Instead, the amount of debt released is considered taxable to the state of California.

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3d rendering of a row of luxury townhouses along a street

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