Even as the federal government prods the mortgage industry to avoid foreclosures through loan modifications and short sales, California may soon let such help become costlier for borrowers.

Debt forgiven on a home loan is considered income and normally subject to taxation. In 2007, however, Congress forbade the Internal Revenue Service to tax forgiven mortgage debt through 2012. Also in 2007, California adopted a ban on state taxation of mortgage-balance forgiveness through the following year. But the ban was never extended.

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