Short sales have helped some cash-strapped homeowners get rid of one financial burden, only to be hit by a new one.
The term “short sale” means the home is sold for less than the amount of the mortgage. In allowing such sales, the lender agrees to forgive part of the debt. But in California the home sellers can find themselves hit with a huge tax bill because the state considers that forgiven debt as taxable income.
But on Tuesday the Sacramento Bee reported that the Legislature appears ready to pass legislation to cancel the tax obligation. The Bee’s Jim Wasserman noted that legislation is moving this week through the Assembly and the Senate, and that Gov. Arnold Schwarzenegger has repeatedly stated support for such a law.
Read the Bee story here.
This tax burden came up Tuesday morning in Santa Rosa at a meeting on new federal rules aimed at encouraging more short sales. Members of the North Bay Association of Realtors suggested that the potential tax could become a deal killer for many Californians considering short sales.
John Duran, a broker with Frank Howard Allen in Santa Rosa and a speaker at the meeting, voiced support Tuesday afternoon for the Legislature’s efforts.
He said it would be disingenuous to offer distressed homeowners a streamlined process for selling their homes “and then turn around and hit them with a tax bill.”
— Robert Digitale