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With less than a month until tax filings are due, struggling Californians who received mortgage modifications or lost their homes in short sales or foreclosures last year face the prospect of huge state tax bills. That’s because legislation that would prevent their canceled debt from being treated as taxable income is caught in the latest budget spat between Gov. Arnold Schwarzenegger and state lawmakers.
Schwarzenegger, a Republican, said this week that he would veto a tax bill passed by majority Democrats. Among other things, the legislation would have mirrored federal tax relief given to those who had mortgage debt forgiven in 2009. In previous years, the state conformed with federal law.
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