California is now aligned with Federal Tax Law

Presently, California State Law mandates that a homeowner must pay income tax on a forgiven or canceled mortgage as a result of a foreclosure or a short sale. At the persistent request of current homeowners, Gov. Arnold Schwarzenegger has been persuaded to turn his attention toward this issue.

Currently, what this law means is that a homeowner, who is already strapped and has found themselves in a position of losing or selling their home for less than their original loan amount, will still be required to pay taxes on that transaction. This law contradicts a federal law that excuses a great deal of homeowners from Federal taxes as a result of the same issues.

Considering the weak housing market, California State’s law continuing to require these taxes is somewhat unfair. Fortunately, the Legislature has been looking into changing this since last year. However, while the Legislature not only had passed a bill that would have alleviated homeowners of this nuisance as well as reflected other federal tax laws, Schwarzenegger vetoed the bill in 2009 due to disagreements with the other tax provisions that came with it. As of last month, Schwarzenegger vetoed another bill, SBX832, which also supported the tax exemption when it comes to mortgages.

This bill also included exemptions for energy companies responsible for researching renewable power resources that qualify for government stimulus grants and included a penalty of 20 percent for citizens who were found to be cheating on their taxes. When the bill was barely passed through the Senate due to the tax penalty, the Governor once again vetoed it.

Thankfully, here to usher in Tax Day, legislators passed SB401 last week, which finally aligns California with the federal government regarding the mortgage tax exemption. Not only will the state allow it to go into effect this year, but the Governor has agreed to sign it. This is a major victory for homeowners in the state of California. While some experts still claim that the recession is no longer, the housing market does not reflect this statement. Homeowners who are already finding themselves in pinched positions should never have to pay more penalties on top of their already unfortunate circumstances.

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