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.