Senate Bill 30 failed to pass the state Assembly Appropriations Committee last week, thanks to partisan political gamesmanship. As a result, struggling homeowners who sold their homes in a short sale in the past eight months will be further penalized by being forced to pay state income taxes on money they never received.
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 previous California exemption of forgiven mortgage debt lapsed at the end of 2012, so forgiven mortgage debt on short sales occurring in 2013 is now considered taxable state income. Senate Bill 30, which is sponsored by the California Association of REALTORS®, would conform California tax law to federal tax law, which already says sellers can't be taxed on forgiven mortgage debt.
"The federal government does not charge federal income tax, and neither should the state. These sellers are already in financial trouble. SB 30 is necessary to give sellers relief from an inequitable and unfair situation," explained Carolyn Miller, president of the Silicon Valley Association of REALTORS®.
REALTORS® are accusing legislators of engaging in political gamesmanship with regard to the debt forgiveness bill. In late May, the Senate Appropriations Committee linked SB 30 to SB 391, which REALTORS® oppose because the bill creates a $75 recording tax for all real estate transactions other than the sale of property. The link, in the form of an amendment, says SB 30 cannot take effect unless SB 391 does as well.
After being placed on the Assembly Appropriations Committee's "Suspense" file for the past months, on Aug. 30 SB 30 failed to pass out of the Assembly Appropriations committee. According to C.A.R., the vote on the bill was along party lines, with Democrats voting "no" and Republicans voting "yes."
C.A.R. president Don Faught did not hide the REALTORS®' dismay at the Assembly committee's actions. "We are disappointed that California Assemblyman Mike Gatto (D-Pasadena) failed to show the leadership necessary to provide relief to distressed homeowners who are already in dire financial trouble," said Faught. "These are real families in real financial need who may well be forced into bankruptcy by an unresponsive legislature. To heap an unfair tax bill on top of the pain and emotional duress of losing a home is unconscionable."
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.