California passes bill to exempt homeowners from phantom 1099 income after a short sale or a foreclosure.

AB 1779 and SB 14 were passed on April 8, 2010, pending signature by the governor, who has stated that he will sign the bill.

The passing of this bill will exempt certain homeowners from paying tax on the income reported by a lender who issues a 1099 to the borrower after a short sale or foreclosure.  This bill conforms with the exemptions already in place following the Mortgage Foregiveness Tax Relief 2007 bill that was amended at the federal level.  

This California bill applies to principal residences only.  So unfortunately if you sold or lost a rental property or second home, you may still owe taxes on this income.