Gov. Arnold Schwarzenegger has signed Senate Bill 401, which will extend a law that exempts homeowners who get mortgage debt relief from having to pay income tax on their savings as if it were a gift.
The law affects people who have been forced to sell their homes in “short sales,” where the bank holding the loan agrees to settle for the sales price rather than the full amount of the loan. Without this law, those borrowers would owe income tax on the difference between the sales price and the loan balance.
The bill, by Sen. Lois Wolk, also exempts from income taxes federal stimulus grants that are used for renewable energy projects.