New Tax Break

Borrowers in foreclosures or short sales will qualify for a new tax break. On April 8, 2010 California Legislature approved a tax break to further assist distressed homeowners. The bill is expected to waive state taxes on mortgage debt that was forgiven in a foreclosure or short sale. About 34,000 taxpayers are expected to benefit from the tax relief.

Individuals would be able to claim it before the tax deadline of April 15. Sen. Ron Calderon (D-Montebello) said this would be another way of lending a hand to those who need it most.

The American Recovery and Reinvestment Act has influenced the tax credit bill. The tax credit bill will include green-energy companies and expected to provide $60 million in tax credits for them.

What does this mean for the tax revenue? According to the Franchise Tax Board, this means that around $34 million would be lost in tax revenue for the state in the next three years to come.

Although this is a great measure for those seeking any type of financial relief, there are government officials who do not favor the bill. Republicans disagree with the bill, which reduces deductions on charitable gifts and would tax income for minor dependents. Sen. George Runner (R-Lancaster) stated that the bill would be giving money to one group of individuals while taking from another.

When a lender agreed to a short sale in the cases were the home was sold for less than what was owed, the lender would forgive that debt, which was taxable, with the new tax credit bill the let go debt would no longer incur any taxes.

Gov. Schwarzenegger had vetoed a bill a month ago regarding the same issue due to provision that could have increase penalties against businesses and the rich who abuse tax credits. This provision was removed in the new tax credit, which the governor would soon sign.

The governor had expressed his concern for those in need and has stated that he is signing the bill because he believes many would benefit from it and wants to help any way he can.