President Obama signed the American Taxpayers Relief Act into law last Wednesday.
"The bill includes a provision to extend the Mortgage Forgiveness Debt Relief Act, which will for one more year exempt the taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification (including any principal reduction). While debt relief has been extended at the federal level, the California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now. C.A.R is sponsoring SB 30 (Calderon, D-Montebello). SB 30 will conform state law to the federal law passed last week. Upon passage of SB 30, the measure will be effective retroactive to Jan. 1, 2013." -California Association of Realtors (C.A.R)
Time to take this on at the state level! Let your local representative know that they need to support this and protect the interest of both home buyers and sellers in the Bay Area.