California home owners who sell their home through short sales may not have to pay state income tax on the forgiven mortgage debt. On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013. For more details, visit the Franchise Tax Board web page on the Mortgage Debt Relief Law.