If the property was your primary residence, then the IRS is allowing taxpayers to exclude the amount of the their canceled debt from being part of their taxable income. However, the state of CA does not allow that same exclusion.
In order to exclude the amount from being part of your CA taxable income, you would have to file claiming the insolvency exclusion for it to also apply to your CA taxes.
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Thank you nick
Yes, you will have to file for insolvency first on your federal return before sending in your CA state paperwork. That excusion will then automatically apply to both states.
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