California REALTORS® Promote Tax Relief for Modified Mortgages
Many California homeowners who have had difficulties making mortgage payments in recent years have used loan modifications to try to keep their homes. The modifications, however, often did not end their difficulties due to California tax law. In response, the California Association of REALTORS® made it a priority to get the law changed so these homeowners could be protected.
Many mortgage loan modifications reduce the principal that a borrower owes. Federal law provided that the amount of the reduction would not be classified as income; but California law said otherwise, and borrowers who thought they had found financial relief were faced with a larger state income tax bill.
The California Association of REALTORS® worked hard to support legislation that would stop this unfairness. Assembly Bill 1393, sponsored by Assemblyman Henry T. Perea (D-Fresno), made California law conform to federal law. Borrowers who had part of their mortgages forgiven would no longer be taxed on the amount forgiven.
The new law, signed by Gov. Jerry Brown in July 2014, was effective immediately and applied to all mortgage-principal reductions made during the 2013 tax year. The state of California estimates taxpayers will save $39 million as a result of this law.
This action is just one of the many ways that the California Association of REALTORS® works hard behind the scenes to keep apprised of, and act upon, current law or proposed legislation so that California homeowners don’t have to.