In December 2015, a new provision known as the omnibus bill was signed into law. Previously, if a homeowner’s debt was forgiven in a short sale, this forgiven debt was counted as income — taxable income! This could carry a major burden for many families, especially when you consider that most individuals pursuing a short sale are already in financial trouble and the amount forgiven could exceed an individual’s annual income.
The law signed by President Obama in December is comprised of a provision that allows homeowners to exclude forgiven mortgage debt from their gross income at tax time. Known as the Mortgage Forgiveness Debt Relief Act of 2007, this measure has now been extended until the end of 2017.
Now, several weeks later, a California state senator has written a bill that would exclude forgiven debt from being considered taxable income on state tax returns.
CA Bill Could Set a Precedent for Short Sale Sellers
This bill is significant because it’s the first bill of its kind and if passed, it would set a precedent that many other states may follow.
Notably, the state of California was amongst the hardest hit during the housing market crisis. At one point in early 2009, distressed property sales (this includes short sales and bank-owned home sales, also called REOs) accounted for more than two-thirds of all real estate sales in California! Today, these transactions account for about 8%, which is a bit above average nationwide.
The Nationwide Impact of CA Senate Bill 907
Known as California Senate Bill 907, the legislation could help thousands of homeowners who are already struggling financially.
In a public statement on her bill, State Senator Cathleen Galgiani (D-Stockton) said, “This is a common-sense measure to avoid additional fiscal burdens on those who are facing financial uncertainty as a result of the economic crisis and often unemployment…Taxpayers who have lost their homes could face an additional income tax liability of thousands of dollars or more.”
If the bill is passed, it could pave the way for similar bills in many other states across the nation.
Distressed property owners in California recently saw another victory, as the California Supreme Court made a precedent-setting ruling that distressed property owners cannot be sued for any remaining debt on a lender-approved short sale.
There are a number of unique steps and processes involved when buying a short sale property or when selling your home through a short sale instead of a traditional real estate transaction. You’ll have lots of advantages in this regard when you work with a short sale expert like Kristine Zelazo, better known as The Short Sale Gal.
Based in Florida, Kristine works with both buyers and sellers and she is an experienced negotiator. So if you’re an investor seeking to get started in buying short sales and need a great mentor or wish to pursue a short sale transaction for the sale of your property, turn to Kristine Zelazo, the Short Sale Gal!
To get started with selling your home, simply complete the home pre-sale form to provide Kristine with additional information on the property in question. Questions? Call 800.664.0616, x802.