Congress gave a one-year reprieve to underwater homeowners this week by waiving taxes on forgiven mortgage debt as part of its "fiscal cliff" deal.
Now real estate agents and homeowners are looking for California to follow suit.
Under long-standing tax law, forgiven mortgage debt is considered taxable income by state and federal tax collectors. As the housing market collapsed in the last several years, waves of underwater homeowners would have paid taxes on the amounts forgiven through short sales, loan modifications and foreclosures. But federal and state lawmakers waived that law from 2007 to 2012.
While Congress this week extended that waiver another year, the California exemption lapsed at the end of 2012, so forgiven mortgage debt is considered state taxable income for the time being. But Sen. Ron Calderon, D-Montebello, has introduced Senate Bill 30 to waive that tax bill in California for all of 2013.
Calderon's chief of staff, Rocky Rushing, said the senator hopes his bill will be fast-tracked and passed on an urgency basis, which requires supermajority approval by both houses. Wasting no time, the California Association of Realtors has already asked this week to be the bill's sponsor, to which Calderon agreed.
"It's important for the financially stressed mortgage holders, for those losing their home to short sales," Rushing said. "It's beyond insult added to injury for them to look at a large tax bill."