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The California Association of Realtors' political action committee gave $500,000 to the state Democratic Party the day before the Democrat-dominated Franchise Tax Board effectively resolved a months-long legislative fight over the state's tax treatment of short sales.

Tuesday's donation, reported Wednesday evening, matches the $500,000 the Realtors gave state Democrats in May. The group also gave the party $168,000 earlier in the year and more than $1 million in 2012. The 2013 contributions, by far the largest to the party in the current election cycle, will help Democratic attempts to keep their two-thirds legislative supermajorities in 2014.

Realtors spokeswoman Lotus Lou denied any connection between the two events. Wednesday's legal opinion from the Franchise Tax Board stemmed from a September clarification on the issue by the IRS, she said.

"The two did not have any relation to each other," Lou said.

In her legal opinion, Franchise Tax Board chief counsel Jozel Brunett cited the clarification by the IRS that forgiven debt after a home is sold for less than the amount owed on it should not be treated as taxable income.

"This is welcome news for Californians who have had to short sell their homes this year," Board of Equalization member George Runner said in a statement. "We learned last month they wouldn't face a federal tax penalty. We now know they won't face a state tax hit either."

In the same statement, California of Realtors President Kevin Brown praised the "recent clarifications" as protecting "distressed homeowners from debt relief income tax associated with a short sale in California."

The Franchise Tax Board is separate from the Board of Equalization, another tax board. Its three members are Controller John Chiang, Board of Equalization chairman Jerome Horton, and state Finance Director Michael Cohen, who answers to Gov. Jerry Brown. All are Democrats.

Such an administrative fix was never mentioned as a possibility during a legislative fight over the issue that spilled into a heated Senate campaign.

The Realtors lobbied heavily this year for legislation that would extend the 2012 state tax benefit for short sales. Supporters said it would put the state on the same page as the IRS, which has said that it does not view mortgage debt forgiveness as federal taxable income.

But Senate Bill 30 stalled after Senate Democrats linked the bill to another measure strongly opposed by the Realtors: Senate Bill 391, which would impose a $75 fee on real-estate transactions to raise money for affordable housing projects. Both bills are pending in the Assembly.

The animosity grew as the Realtors injected hundreds of thousands of dollars into last summer's special election in the Central Valley's 16th Senate District. The money either attacked Democrat Leticia Perez or supported Republican Andy Vidak, who won

"We are not convinced that 'one-party control' of the Legislature can or will produce effective policy development for California," association president Don Faught wrote in a July email to The Bee.

Senate President Pro Tem Darrell Steinberg accused the Realtors of "scorched-earth" tactics.

This week's mega-donation might ease some of those hard feelings. It comes as the Realtors have contributed the election-cycle maximum of $8,200 to several California lawmakers on both sides of the aisle.

PHOTO: Real estate agent Pat Quan, of Coldwell Banker puts flyers in front of one of his home listings in El Dorado Hills, on Wednesday, Oct. 09, 2013. The Sacramento Bee/Manny Crisostomo



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