Welcome to San Diego Blog | April 8, 2010
Short Sales & California Tax Foregiveness
Relief appears imminent for thousands of San Diego homeowners nailed with the CA state tax bills for mortgage debts forgiven in 2009. California State lawmakers stated Monday that they plan to cancel the state tax obligations with a vote today.
Shannon Murphy, spokeswoman for Assembly Speaker John Pérez, D-Los Angeles, said legislation went before the Assembly Revenue and Tax Committee Tuesday and the Appropriations Committee on Wednesday, and will receive a full vote today.
A similar California Senate floor vote planned today would send the bill immediately to Gov. Arnold Schwarzenegger, who has repeatedly stated his support. The new bill is similar to one he vetoed March 25. But this time it omits a part he opposed – financial penalties for businesses that routinely seek state tax refunds.
Monday, Schwarzenegger spokesman Mike Naple said the governor “hopes the Legislature fully addresses the concerns raised in previous versions of this bill.”
The new movement means that Californians who got unexpected tax bills of $10,000 or more in recent weeks would soon be off the hook. Most are borrowers who received loan modifications last year or lost their houses in short sales, in which banks accept prices below what they’re owed. In both cases, lenders forgave some of the debts owed them, a process that exposes borrowers afterward to taxes.
“We want to get it done before the (April 15) tax deadline,” said Alicia Trost, spokeswoman for Sen. President Pro Tem Darrell Steinberg, D-Sacramento. “We don’t want to have people jump through hoops.”
Normally the state and federal governments view forgiven home loan debt as additional income and report it as 1099-C income, which is taxable. Given the state of the housing market, both have backed off. The federal government has suspended taxes on forgiven mortgage debt from 2007 through 2012. California suspended it for the 2007 and 2008 tax years. But disagreements over the business tax refunds delayed a bill extending it to 2009.
The bill being considered this week, Senate Bill 401, would cancel state tax obligations for forgiven mortgage debt through the 2012 tax year. The Assembly planned Monday to rewrite SB 401 from a bill regarding tax shelters to one that aligns much of California’s tax law with that of the IRS. That includes canceling taxes on forgiven mortgage debt and on recipients of federal renewable energy grants.
This is great news for anybody in San Diego considering a short-sale! Now borrowers can sell their homes short and move on with life without the fear of receiving a giant tax bill. This should really help to speed up the entire process of cleaning up our distressed housing market. In all reality, the housing market could be back on track in 3 years of distressed sellers take advantage of these opportunities before they expire in 2012.
If you have any questions about short sales, give us a call or simply respond to this post and we will anwer the question for all to see.
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