Posted on | January 8, 2013 |
Congress kept federal tax collectors from considering mortgage-debt relief from short-sales or loan modifications as income at bay for one more year.
But state income tax relief on mortgage debt fell off California?s cliff at the end of 2012.
Realtors and homeowners left pondering the question of whether California Gov. Jerry Brown and state lawmakers will take action to conform to action on Capitol Hill to extend the 2012 Mortgage Debt Relief Act until Jan. 1, 2014 got their first clue this week.
The Clue:
The California Association of Realtors said it would sponsor Senate Bill 30, a measure introduced on Dec. 3, 2012 by Sen. Ron Calderon, D-Montebello, to waive mortgage debt forgiven on a principal residence as taxable income for all of 2013.
C.A.R. president Don Faught praised Calderon for acting quickly on an issue that is critical to the housing market.
It could provide tens of thousands of California homeowners the vital financial relief they need at the state and federal tax level to make important personal financial decisions about real estate transactions, Faught said.
Upon passage of S.B. 30, the measure would be retroactive to Jan. 1, 2013.
The Call-Out:
Jack Ritoli, owner/broker of Southern California Realty, called attention to the disparity in mortgage debt relief forgiveness at the federal and state government levels right away. He?d been watching the state Franchise Tax Board closely to see if an automatic extension would be applied.
The silence was a bit unnerving, Ritoli said.
?Everyone was worried about what the Fed was doing, so the attention wasn?t necessarily focused here,? the Victorville-based real estate executive said. ?This is the first good news I?ve had that someone is looking at it.?
Calderon said swift passage of S.B. 30 is critical, not only for economically-stressed Californians who have lost their homes through short sales, but for the continued recovery of the housing market.
?To heap an insurmountable tax bill on top of the pain and emotional duress of losing a home is unconscionable,? Calderon said.
Rocky Rushing, chief-of-staff for Calderon, said S.B. 30 is in its early stages, but the first round of hearings may take shape as early as February. The senator hopes the bill will be amended and passed on an urgency basis, a step requiring a two-thirds vote of approval by both houses.
The bill would take effect immediately as a tax levy.
For Ritoli, that can?t happen fast enough.
He said he is already picking up vibes from clients that they?re getting cold feet over whether to seal the deal on short-sale transactions ? a decision that could put some on a path to foreclosure.
One client Ritoli spoke of has a mortgage that is more than $200,000 upside down. Even with a short-sale bid of $490,000, they?re shying away because of concerns about their tax liability. ?The bank will accept $490,000, but they owe over $600,000-plus with fees and penalties,? he said, an amount that could result in a size-able state income tax bill.
?I?d say 40 percent of my listings involve people who are upside down on their loans,? he said. ?There?s still a tremendous amount of people who will be affected by this.?
Spin-off Effect:
The state Franchise Tax Board plans to issue an analysis on the impact of S.B. 30 on Jan. 25. Once it becomes available to the public, you can find it at this Legislative link.
If you?d like a run-down of the state income tax rules regarding mortgage debt relief resulting from a foreclosure, short sale or loan modification of a taxpayer?s qualified personal residence, here?s the link to the April 2010 memo the state put out, as tax relief was extended through 2012.
Lawmakers who have signed on as co-authors of the legislation include: Sens. Marty Block, Lou Correa, Ted Lieu and Curren Price, Jr.
What do you think?
Many homeowners who have been paying their mortgages and taxes aren?t all happy with the provision. Should this tax relief package pass, and conform to the federal reprieve? Or, is it time to call it a day?
Write to Debra Gruszecki at dgruszecki@pe.com. Post your thoughts here. Or send your note to Twitter @ Debinpalmsprngs
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