By A collective sigh of relief is being issued by taxpayers who’d not only lost their homes, their dreams, and large chunks of their pride, but who were staring down tax bills that they couldn’t fathom how to pay.
It might not soothe all their wounds, but a measure passed last week by the California State Legislature will, when signed by Governor Schwarzenegger, give some much-needed breathing room to the thousands of Californians who lost their homes to foreclosure or who had to sell them in a short sale.
You see, mortgage debt that is forgiven, which happens when your mortgagor allows you to sell your home short or after a foreclosure, is taxable, both federally and at the state level. A moratorium was placed on the federal tax, but in California, a state riddled with crushing debt, there were serious questions about whether the tax would be levied.
Others affected by this measure are those who got loan modifications that lessened the amount that was owed to the mortgagor.
Assuming that the governor signs the bill, which he has said he will do, it will provide relief to upwards of 100,000 Californians through 2012, when the measure is set to expire.
Our state is certainly one that needs income, and it’s estimated that California will collect about $34 million less in taxes as a result of this bill. No matter how badly the money is needed, however, generating that income at the cost of rendering our taxpayers, quite literally, penniless is too much of a price to pay.
If you’ve been involved in a foreclosure, short sale, or have had mortgage debt forgiven, you may be eligible to claim the relief on your 2009 State and federal income tax returns.
As always, whenever you have questions relating to taxes, be sure to contact your accountant or financial planner; they’ll have the best advice and will give you the proper guidance.
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