California REALTORS® urge passage of bill to help underwater homeowners get much-needed financial relief
LOS ANGELES (Aug. 28) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is sponsoring Senate Bill 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.
SB 30 is currently on the Assembly Appropriations Committee’s “Suspense” file. If the committee doesn’t approve the bill by Friday, it may be stalled until January, and homeowners will be subject to state taxes. C.A.R. is asking that the Appropriations Committee vote “yes” on the bill and for the Legislature to pass the bill before adjournment in September.
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 forced 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.
Political Tricks Threaten Homeowner Relief
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.
Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 155,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.