After Congress passed a federal law that extended mortgage debt forgiveness at the beginning of this year, California is looking to pass a similar bill on the state level for residents who perform short sales.
Last month, State Sen. Ron Calderon (D-Montebello), introduced a bill to protect hundreds of thousands of distressed Californians who are underwater on their mortgages from an unjust state tax.
Senate Bill 30 will assist borrowers who relinquish their home through a short sale to not owe any taxes on the difference between the sale price and the loan debt. The exemption will last for one year, Calderon said.
Last year, there were approximately 90,000 short sales in California.
The previous California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income right now. When SB 30 is passed, the measure will be effective retroactive to Jan. 1, 2013.
“The swift passage of SB 30 is critical not only for economically-stressed Californians who have lost their homes through short sales but also for the continued recovery of California’s housing market,” Calderon said. “To heap an insurmountable tax bill on top of the pain and emotional duress of losing a home is unconscionable.”
Senator Joel Anderson (R-San Diego) joined Calderon as the principal co-author of SB 30, claiming that a bi-partisan effort will help California homeowners who negotiate a short sale or loan modification with their mortgage lenders get debt relief without being taxed on the loss of their home.
“This bi-partisan effort will allow tax protections for those people going through one of the worst times of their life,” Anderson added.
Also, the California Association of Realtors decided to sponsor the bill to help the Senators’ efforts in getting this measure passed. CAR president Don Faught urged the state Legislature to act quickly and approve this measure, calling it “critical to the housing market.”
“SB 30 will give hope to tens of thousands of California homeowners and provide the vital financial relief they need in order to make important financial decisions,” Faught said.