California Short Sale tax forgiveness
California Association of Realtors® has issued a RED ALERT! This information is for members of CAR and for the public as it will, and does, impact every single person involved with a short sale in California during 2013.
As we know, the IRS extended the Mortgage Debt Forgiveness (short sale tax forgiveness) through to the end of this year (so far) as short sales remain a part of our market. BUT, California has NOT YET followed suit. Its been close, but as usual, politics is at work and there have been some dirty tricks and other language added to what should be a “simple” bill meant to help the hard hit homeowners forced into short sale by our economy and other factors. Read on and see how you can help. This, direct from CAR: RED ALERT SB30:
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Assembly Pulls Dirty Trick
Holds Underwater Homeowners Hostage
Call Assembly Member Gatto TODAY to Voice Your Outrage!
C.A.R. is sponsoring SB 30 to provide relief to distressed homeowners attempting to sell their homes in a “short sale.” 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 federal government does not charge federal income tax, and neither should the state. These sellers are already in financial trouble, and SB 30 is necessary to give sellers relief from an inequitable and unfair situation.
Last week the Assembly Appropriations Committee, at Assembly Member Gatto’s direction, held SB 30. Senate leadership took SB 30 hostage in an attempt to extort C.A.R.’s support for a new tax measure. Rather than do the right thing and pass SB 30, Mr. Gatto decided to go along with Senate leadership. Right now, any seller who sold their home in a short sale this year will have to pay income tax on the debt forgiven by their lender.
Action Items
1. Call Assembly Member Mike Gatto At
1-800-969-3420
Enter PIN number 3043
Call between the hours of 9AM and 5PM Monday-Friday
If you wish, you can bypass the first part of the message by entering the PIN, followed by the # sign, at any time. You may also bypass the 2nd part of the message by hitting the “1” key to be directly connected to your legislator’s office.
Ask him to support distressed homeowners and support SB 30. As the Chair of the Appropriations Committee, he is responsible for the committee’s failure to act on behalf of distressed homeowner.
2. FORWARD THIS EMAIL TO YOUR CLIENTS, FAMILY AND FRIENDS –
Ask them to Call Assembly Member Gatto too. They can use the same phone number and PIN number to be connected to Assembly Member Gatto’s office.
3. Post messages on Mike Gatto’s Facebook page: www.facebook.
4. Tweet messages via Twitter. Please be sure to include Assembly Member Mike Gatto’s Twitter handle, @mikegatto, in your message.
Here are some sample messages:
Don’t abandon distressed homeowners #YesSB30 #CaLeg @mikegatto http://on.car.org/redalertsb30 RT
No tax on short sales #YesSB30 #CaLeg @mikegatto http://on.car.org/redalertsb30 RT
I am a REALTOR & support distressed homeowners. Wish @mikegatto did too. #YesSB30 #CALeghttp://on.car.org/redalertsb30 RT
Protect underwater homeowners. @mikegatto #YesSB30 #CALeg http://on.car.org/redalertsb30 RT
Pay large tax vs. foreclosure?? Help struggling homeowners. @mikegatto #YesSB30 #CALeghttp://on.car.org/redalertsb30 RT
No tax on phantom income. @mikegatto #YesSB30 #CALeg http://on.car.org/redalertsb30 RT
Help families facing foreclosure. @mikegatto #YesSB30 #CALeg http://on.car.org/redalertsb30 RT
Background
The federal government enacted the Mortgage Debt Relief Act of 2007 effectively excusing borrowers from income tax on debt forgiven in a “short” sale. In late 2008, the federal government extended this relief until December 31, 2012. California conformed to the federal law for state tax purposes. On December 31, 2012, Congress passed budget solutions in an attempt to avoid the “fiscal cliff.” Included in this measure was an extension of the income debt forgiveness sunset date to December 31, 2013; however, California has NOT conformed to the new federal extension. C.A.R. is sponsoring SB 30, to extend this relief in California law to December 31, 2013, and make state law retroactive to January 1, 2013.
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.
Here’s why SB 30 is critical to California:
- Distressed homeowners are faced with a no-win situation — either pay taxes on money they don’t get or let the home go to foreclosure. Distressed homeowners often only have two choices – closing a short sale or allowing their home to be foreclosed upon. If they fear state income tax liability on their short sale, they will opt for foreclosure instead in order to avoid state tax liability. Foreclosures are bad for communities, bad for homeowners and damage housing values more than short sales.
- Families deserve to know if they will be taxed. Homeowners currently in short sale negotiations can’t finalize these transactions without potentially incurring state tax liability. Sellers who are involved in short sales or contemplating a short sale need to know now that the debt forgiven is not going to be treated as income for state tax purposes.
- It’s the right thing to do. Families who have already been forced this year to make the difficult decision to sell their home as a short sale are already in financial trouble. They simply should not have tax liability on “phantom” income or debt forgiveness – money they’ve never actually received.
For More Information
Contact DeAnn Kerr at deannk@car.org.
