CA short sellers may not be off the hook yet

Amid the fiscal cliff resolution a number of measures were subtly added in the bill ranging from tax breaks for NASCAR to tax credits for algae growers (I’m not making these things up). A much anticipated and welcome piece of legislation was the extension of the Mortgage Debt Releif Act of 2007 to January 1st, 2014.

Section 202 of The American Taxpayer Relief Act of 2012 provides, in pertinent part: SEC. 202. Extension of Exclusion From Gross Income of Discharge of Qualified Principal Residence Indebtedness. (a) In general.—Subparagraph (E) of section 108(a)(1) is amended by striking ‘‘January 1, 2013’’ and inserting ‘‘January 1, 2014’’. (b) Effective date.—The amendment made by this section shall apply to indebtedness discharged after December 31, 2012.

In other words, What was good in 2012 shall remain the same in 2013. This news had Realtors® shouting off the web’s rooftops such as Facebook and Twitter.

“MORTGAGE FORGIVENESS DEBT RELIEF EXTENDED TO 2013!!  Lets do your house’s short sale with NO tax consequences on the forgiven balance!!” (FaceBook)

“Such good news!! Mortgage debt relief extended thru 2013! No Tax #shortsale” (Twitter)

As great as this news is we must step back and look at all the peices of the puzzle. Last I checked every April I end up writting two checks. One to the Federal Government and the other to the State of California. The issue is I have not heard anyhting regarding California’s S.B. 401 wich essentially mirrored the Federal’s Mortgage Debt Releif Act of 2007 while imposing additional limitations. It is yet unclear if the changes effectively extend California’s.

We reached out to the California Franchise Tax Board on this issue:
“Partially conforms to the federal Mortgage Forgiveness Debt Relief Act for tax years 2007 through 2012. There is no new information regarding a new bill.  As of now California partially conforms to the federal Mortgage Forgiveness Debt Relief Act for tax years 2007 through 2012. You can contact your local legislative branch to request information regarding your question.”

Until the dust settles and we have a complete picture we should refrain as professionals from advising our clients to jump off a tax cliff they may not survive. All tax and legal implications should always be referred to the appropriate professionals. I hope to hear some positive news out of our state capitol since many homeonwers continue to struggle with their mortgages.

Do you have additional info on this subject? We’d love to hear from you!