Franchise Tax Board of California 

We updated our website to include information about mortgage debt relief for taxpayers who sold their principal residences through a short sale in 2013.

According to an Internal Revenue Service (IRS) Information Letter dated September 19, 2013, the IRS determined that California taxpayers who sell their principal residences for less than what is owed on the home as part of a short sale, in which the lender agreed to the short sale, do not incur cancellation of indebtedness income. Instead, the amount of forgiven debt is included in the amount realized in determining gain on the sale of that residence.

The IRS guidance is limited to California short sales only. The IRS guidance did not specifically address other types of real estate transactions such as non-judicial foreclosures and mortgage loan modifications.

We will update information and FAQs on our website soon. For more details and updates, please go to ftb.ca.gov and search for mortgage forgiveness debt relief.

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