Relief appears imminent for thousands of San Fernando Valley homeowners hit with state tax bills for mortgage debts forgiven in 2009.
State lawmakers said Monday they plan to cancel the state tax obligations with a vote Thursday. Shannon Murphy, spokeswoman for Assembly Speaker John Pérez, D-Los Angeles, said legislation will go before the Assembly Revenue and Tax Committee today and the Appropriations Committee on Wednesday, and will receive a full vote Thursday.
A similar Senate floor vote planned Thursday would send the bill immediately to Gov. Arnold Schwarzenegger, who has repeatedly stated his support. The new bill is similar to one he vetoed March 25. But this time it omits a part he opposed – financial penalties for businesses that routinely seek state tax refunds. Democrats removed the section despite their contention that some firms "fish" for refunds whether or not they're owed.
Monday, Schwarzenegger spokesman Mike Naple said the governor "hopes the Legislature fully addresses the concerns raised in previous versions of this bill."
The new movement means that Californians who got tax bills of $10,000 or more in recent weeks could soon be breathing a sigh of relief. Up until now, borrowers who received loan modifications or lost their houses in short sales were taxed on the debt relief.
Many San Fernando Valley residents have anxiously waited for the state to resolve the issue before the tax filing deadline – or have filed extensions.
Typically the state and federal governments view forgiven home loan debt as additional income and tax it. But both have backed off amid the housing crash. The federal government has suspended taxes on forgiven mortgage debt from 2007 through 2012. California suspended it for the 2007 and 2008 tax years. But disagreements over the business tax refunds stalled a bill extending it to 2009.
The bill being considered this week, Senate Bill 401, would cancel state tax obligations for forgiven mortgage debt through the 2012 tax year. The Assembly planned Monday to rewrite SB 401 from a bill regarding tax shelters to one that aligns much of California's tax law with that of the IRS. That includes canceling taxes on forgiven mortgage debt and on recipients of federal renewable energy grants.
If you are a distressed homeowner and would like more information regarding the options that you have regarding your mortgage, please call Tracey Thomas at 818-652-2937.
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