There’s a bill currently on Governor Schwarzenegger’s desk that will continue to help struggling homeowners sell their homes through a short sale and avoid foreclosure. The State Senate voted 21-15 Thursday to approve tax conformity legislation by Sen. Lois Wolk, D-Solano, to protect homeowners embroiled in the mortgage crisis from onerous tax burdens. Senate Bill 32 (8X), which also removes barriers to job-creating renewable energy projects, now moves to the governor’s desk.

“This measure works to prevent excessive taxation of distressed Californians who are already struggling to protect their homes, their largest investment,” said Wolk, who chairs the Senate Revenue and Taxation Committee. “As many Californians face foreclosure and are forced to walk away from their homes, the last thing they should have to think about is paying taxes on debt they couldn’t repay. This measure puts an end to this onerous application of tax law.”

Under current California law, debt forgiven on many home loans is considered income and subject to state tax. Wolk’s measure rectifies this inequity by ensuring that taxpayers can exclude income from mortgage debt forgiveness resulting from a short sale or loan modification in their California tax return, forgiving up to $500,000 in income from debt forgiveness. SB 32 (8X) brings the state into conformity with the federal Mortgage Forgiveness Debt Relief Act of 2007 and applies retroactively to 2009.

Wolk’s bill also accelerates renewable energy production and job creation by preventing taxation of federal renewable energy production tax credits converted to cash grants by Congress in February 2009, as part of the American Recovery and Reinvestment Act.

“Since tax credits are never considered income, taxing the grants would be inequitable and could add additional costs onto these needed projects,” Wolk said. “It is important that we avoid this kind of unnecessary roadblock to economic growth as our state works to rebuild its financial prosperity.”

Additionally, SB 32 (8X) revises state law to conform with changes to federal income tax law dating back to 2005, benefiting California taxpayers and tax preparers by making state and federal law more consistent.

The governor has 12 days to sign or veto the measure once it reaches his desk. This is great news for struggling homeowners considering selling their home through a short sale and avoiding the foreclosure process. Please call me at 760.219.3964 or e-mail me at pam247re@hotmail.com if you have any questions.