From the California Association of Realtors:
LOS ANGELES (Sept. 3) – Thanks to partisan political gamesmanship by the Assembly Appropriations Committee, struggling homeowners who sold their homes in a short sale in the past eight months will be further penalized by being forced to pay state income taxes on money they never received, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.
Senate Bill 30 conforms California tax law to federal tax law, which already says sellers can’t be taxed on forgiven mortgage debt. SB 30 failed to pass out of the Assembly Appropriations committee last Friday. The vote on the bill was along party lines with Democrats voting “no” and Republicans voting “yes.”
“We are disappointed that California Assemblyman Mike Gatto (D-Pasadena) failed to show the leadership necessary to provide relief to distressed homeowners who are already in dire financial trouble,” said C.A.R. President Don Faught. “These are real families in real financial need who may well be forced into bankruptcy by an unresponsive legislature. To heap an unfair tax bill on top of the pain and emotional duress of losing a home is unconscionable.”
Under current state law, when a lender forgives mortgage debt in a short sale, the seller must pay state income tax on the amount of forgiven debt. The previous California exemption lapsed at the end of 2012, so forgiven mortgage debt on short sales occurring in 2013 is considered taxable state income. The federal government does not charge federal income tax, and neither should the state.
Unfortunately, Senate leadership, in an act of political gamesmanship, linked the enactment of SB 30 to a new tax measure in an effort to extort C.A.R.’s support for that tax measure.
Is this the same for foreclosures?
Big thanks to CAR for standing up to the thug tactics of the Democrats.
What was the new tax they linked this to? Partial repeal of Prop 13?
SB 391:
Unfortunately, Senate leadership, in an act of political gamesmanship, has linked the enactment of SB 30 to SB 391, an unrelated new recording tax. SB 391 does not have the support necessary to pass on its own merits, so they are holding distressed homeowners hostage to promote the tax increase. These are real families in real financial need who may well be forced into bankruptcy by an irresponsible legislature.
Great…
While its good to see accountability. Unfortunately this will just end up being another reason for deadbeats to hang on until the bitter end.
If banks / the taxman start chasing after this money it’s going to push a lot of buyers out of the pool.
If you’ve been living rent free for a few years before you finally get up and short sale you have plenty of money to pay the tax bill. Unless of course you’ve been blowing all the money or we’re hoping to use it to make a down payment on the next house purchase.
SB 391, an unrelated new recording tax
Not mentioned by CAR is that they were against SB 391, a bill that would add a $75 fee to each document recorded.
CAR thought imposing such a fee would be anti-realtor, but then flip-flopped on it in order to get SB 30 passed. It looks like the Democrats want to teach them a lesson instead.
Where the money would go from SB 391: http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB391
The bill would require that revenues from this fee be sent quarterly to the Department of Housing and Community Development for deposit in the California Homes and Jobs Trust Fund, which the bill would create within the State Treasury. The bill would provide that moneys in the fund may be expended for supporting affordable housing, administering housing programs, and the cost of periodic audits, as specified. The bill would impose certain auditing and reporting requirements.
Is this the same for foreclosures?
Yes but check with your tax advisor and attorney.
http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB30&search_keywords=
Good, let’s get rid of short sales. They are corrupting and destructive to the market. The market is back, genuine distress is gone, and it’s clearly time to stop people from gaming the system.
Funny to see good things happen for the wrong reasons, but hey, that’s CA government.
Personally, I feel that if you get debt relief, perhaps going through BK isn’t uncalled for.
Enough free cheeze
Due to SB30 containing an urgent clause it can still be heard and voted on before the end of the legislative calendar on 9/13. Contact your representatives and urge them to pass this bill. If it does not pass it will be heard again in 2014 and could be set to be retroactive back to 1/1/2013 but people need to take action. Call, email, blog and get the word out! Most people aren’t even aware of this bill because they think they are covered due to the federal side being covered. They will have a rude awakening come next April. People think the California economy is screwed up now, let’s see how many bankruptcies are filed in 2014 if the state doesn’t do something.
Also for those that feel short sales are only for those looking for a free ride, it is true that many have taken advantage of them and that is unfortunate. However it does help those truly in need who are unable make their mortgage payment by giving them a way out of a bad situation. It also opens the market for those looking to buy homes by putting more homes on the market because you have people willing to sell. This helps the economy by putting people who can afford mortgage payments in homes faster. Not passing this bill will only keep people in these homes longer because it limits their options. In my case this bill not being passed just blew a deal for me purchasing a home. I was working with a woman whose husband decided to bail on her and their mortgage. As of last Friday when this bill failed she pulled out of our deal and is no longer interested in a short sale. The bank will have to fight with her on the foreclosure process to get her out and my chances of purchasing this home have pretty much been destroyed. This bill not being passed will drive foreclosures and bankruptcies to record levels. Homes that are currently on the market will start being pulled. This bill does the whole state wrong.