Mortgage Debt Forgiveness

California and federal tax laws currently exempting debt cancellation from income tax consequences are set to expire Dec. 31, 2012. Congress may act before the end of this year but after the elections are over.

For debt on a qualified principal residence up to $2,000,000 federal law provides tax exemption for debt forgiven. California provides exemption for indebtedness up to $800,000 and forgiven debt up to $500,000.

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

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