Wednesday, April 14, 2010

No More Taxes on Short Sales, Foreclosures

According to SF, Arnold Schwarzenegger has finally decided to provide relief to California homeowners. Currently, there is a law that requires Californians to pay income taxes on canceled or forgiven debt resulting from a short sale or foreclosure.

The state law runs counter to a federal law that exempts many homeowners from federal taxes on canceled mortgage debt. It's unfair and given the bleak housing market, it's also unseemly. It needs to be changed.

In 2009, the Legislature passed a bill that would have aligned the state with the federal tax exemption. It would have also aligned the state with a few other federal tax provisions. Schwarzenegger supported the mortgage tax realignment but not the other provisions. So he vetoed it.

Last month, he vetoed SBX832, another bill that contained the mortgage tax exemption. This bill contained two other sensible tax provisions - a state tax exemption on government stimulus grants for energy companies pursuing renewable sources of power, and a 20 percent penalty for Californians who are caught cheating on their taxes. Business groups opposed the penalty for tax cheats, and the bill barely squeaked through the Senate. The governor decided to veto that one, too.

The third time has been the charm - and right before Tax Day. Last week, legislators passed SB401, which simply brings the state into line with the federal government on this mortgage tax exemption. The governor is going to sign it and the state is going to allow taxpayers to use the provision in their taxes for this year.

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