Tax Services, Solutions and Strategies

Time to amend your California 2013 Tax return for a refund?

If you ever had a short-sale or foreclosure of your property, you know the forgiven debt is treated as income.  This can be a sizable amount to add to your taxable income;  fortunately the federal tax code allows the exclusion for some or all of this income.  Often there are significant differences between federal taxes and state taxes. For our current example, California stopped conforming to how the federal tax code handles income from discharged mortgages at the end of 2012.

State governments can change their minds.  California has retroactively extended its conformity to the federal tax code for mortgage forgiveness debt relief for 2013.

This means anyone who already filed and paid California taxes due to this issue can amend their 2013 CA return for a refund!!!!

Contact us at now to get started claiming your refund.

Details of this change from the FTB website:

California Mortgage Forgiveness Debt Relief Extended through 2013

On July 21, 2014, Governor Brown signed Assembly Bill 1393 (Ch. 152) retroactively extending California’s partial conformity to the federal exclusion of income from the discharge of qualified mortgage debt to tax year 2013.

Discharge of qualified mortgage debt to tax year 2013, specifically:

  •  The California exclusion is extended to apply to discharges of qualified mortgage debt occurring on or after January 1, 2013, and before January 1, 2014.
  •  Qualified principal residence indebtedness is limited to $800,000 ($400,000 for married/RDP filing separate), and
  •  Taxpayers may exclude from gross income up to $500,000 ($250,000 for married/RDP filing separate) of qualified mortgage debt forgiven.

To claim relief on a previously filed 2013 tax return:

  • If taxpayers have already filed their 2013 tax return, and reported the discharged mortgage debt as income, they can file a Form 540X, Amended Individual Income Tax Return, to exclude the income and reduce their tax liability.
  • Taxpayers need to write “Mortgage Debt Relief” in red across the top of the Form 540X.

To claim relief on an original 2013 tax return:

  • Taxpayers who have not yet filed their 2013 tax return can file for mortgage debt forgiveness relief on their original 2013 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.
  • Taxpayers must include a copy of their federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with their original California tax return.

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