Hat tip to Susie! From the L.A. Times:
The measure, which is expected to be signed by Gov. Arnold Schwarzenegger, would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale.
Thousands of Californians whose homes were foreclosed on or sold at a loss would get tax relief under a measure approved Thursday by the state Legislature.
The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.
Gov. Arnold Schwarzenegger said he would sign the measure, which would also provide about $60 million in tax credits to green-energy companies, when it reached his desk. Californians can already claim the tax breaks on federal returns. Lawmakers passed the measure in time for people to take advantage of it by the April 15 deadline for filing tax returns.
“The mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it’s about time we gave these folks a helping hand,” said state Sen. Ron Calderon (D-Montebello).
The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.
The “green” credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy. The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief.
Other parts of the measure, SB 401 by Sen. Lois Wolk (D-Davis), were called tax increases by Republicans. Even though they supported the tax-relief element, several GOP members of the Senate and Assembly voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.
The Republicans objected to a provision that would reduce deductions for charitable gifts, and to changes that would allow the state to tax more income earned by minor dependents.
The changes would also make it harder to qualify a home as a principal residence for purposes of escaping capital gains taxes when the property is sold, and some penalties and interest charges to corporations would be increased, according to Therese M. Twomey, a principal consultant for the Senate Republican Policy Office.
These changes would bring in more than $10 million in new revenue over five years, Twomey said.
“It’s an issue of fairness,” said Sen. George Runner (R-Lancaster). “You are giving money to one group of people and taking it away from another group of people.”
With the plunge in the real estate market, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have been foreclosed upon or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.
The amount waived has been considered taxable income under California law. The measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home. The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.
Wow, Jim, you’re quick! I have no idea why I’m chuckling re: the hat tip, but I am, and it’s much appreciated during my “pocket listing” adventure
today.
The rental agency is doing a pocket listing, and you might as well start packing.
Once they embark on a mission to sell it, they will either succeed and run you out, or drive you crazy with showings and run you out.
Does this apply to the people who refinanced to take out money to buy new cars, TVs, etc…, then later lost the home or did a short sale?
Giving people a tax break when their home loan was to purchase a house is one thing, but to give them a break when they used their house as an ATM is another…
Well, Jim, I don’t think it’s the rental agency, but the owners of the property. The lady from the management company was as shocked as me last night. But I agree wholeheartedly with your other comments. This weekend will be very busy for me, but I hope to have good news next week.
Erin,
Yes, if it’s a mortgage or a Heloc, they walk away with no consequences.
You get to keep the Hummer.
Chuck
Chuck,
thanks. Well that just stinks.
If the deficiency balance gets waived as well under the new Obama short sale,DIL program then why stay in an underwater mortgage? No downside to entering the free rent program.
I am so sick on the double standard going on daily in this country. If you make poor decisions the government forgives your debts and doesn’t make you pay the taxes on these gifts from the banks. But, if you make good decisions and abide by the rules you get to pay the AMT and more taxes. My favorite is the “making work pay”. Obama lets my company take less taxes out of my check so I can spend more during the year and then the government just recoups that the next year on April 15th. Oh brother, just another shell game by the government.
Seeing as how California is in deep debt, this simply means everyone else will be paying the difference in taxes. Unless California permanently defaults on its debts, that’s a mathematical guarantee.
Aviara, you do realize that “making work pay” is an actual deduction on your taxes right? While I think it’s a stupid idea, just want to make sure you understand what it is. I take it you haven’t done your taxes yet?
The law is just an extension of the stimulus check by Bush, just spread out over every paycheck. A tweak to something we’ve already been getting.
Scholars debate which President’s method was slightly more stupid, but they’re both stupid. An involuntary loan taken out in your name and dispersed to you, which is repaid through future tax increases. Can’t wait for which President will be willing to do that!
Well, Jim, I don’t think it’s the rental agency, but the owners of the property.
Giving people a tax break when their home loan was to purchase a house is one thing, but to give them a break when they used their house as an ATM is another…
lisa