Getting Short Sales Approved

When a homeowner sells their property “short,”  that amount of money that was forgiven by the lender is considered income and typically taxed.   Well, currently the Federal Government is not taxing that money to the short seller but the state of California is.  On Monday, Legislation to prevent the state from taxing forgiven mortgage debt cleared the state Assembly.  The legislation could potentially offer tax relief to thousands of Californians who sold their home through short sale in 2009.  The measure passed 47-27 and is now being sent to Governor Schwarzenegger.

Schwarzenegger’s office signaled later that he may veto the measure. 

Currently, the fed’s tax relief is in place through 2012.  California was forgiving the “income” in 2007 and 2008 but since falling on major budget deficits, the state has since been taxing the amount of money the seller/homeowner was forgiven.

Doug’s take: I can definitely see both sides of this one.  It is a huge help for struggling homeowners that have to sell short to get the tax break.  I know, i have many short sale clients currently and in the past.  They all tell me how tough it is going to be to pay that tax on the forgiven amount.  It would be a much needed break for those in the difficult position of losing their home and have to do a short sale.

On the other hand, the state is in financial ruin as well.  The state needs all the tax money it can get.  We’ve all been effected by the deficit.

My suggestion is meeting in the middle and only taxing half as much as would normally be taxed.  It would be a win-win in my opinion but then again politics are not that easy.  We’ll just have to wait and see how it plays out.  I know my past short sale clients will be anxiously waiting.

If you have any questions about selling your home as a short sale, i’m here to help.  Give me a call or email and i’ll put my short sale experience to work for you.

clear skies,

doug reynolds

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