Senate bill 401 passed yesterday, bringing California in line with Federal policy which waives taxation on forgiveness of debt for a personal residence. Governor Schwarzenegger said he would sign the bill. For example, for homeowners considering a short sale, this means that the amount of the “haircut” (loss) their lender(s) would take on that short sale will not be counted as income for them – which it would have been had this law not been enacted. It is a technical bill, and so as always, consult your financial adviser.