Tax Relief for Homeowners Who Modify Home Loans Gets a Second Chance
STOCKTON—State Senator Galgiani is pleased to announce the passage of Senate Bill 907 during the waning hours of the legislative session. The measure, which provides homeowners who receive debt reduction on their home mortgages with important state tax relief, had stalled in the Assembly. The bill was revived and passed the Senate Floor in the last two minutes of the legislative session after Galgiani, working with the Senate’s leadership, spent the remaining hours of session personally lobbying for its passage.
Galgiani, who represents San Joaquin and Stanislaus counties, one of the hardest hit areas by the mortgage crisis, introduced the measure after hearing from many of her constituents about the enormous tax bills they faced following a short-sale or other similar mortgage debt relief from their lender.
“More than six million families lost their homes in the housing crisis, and there is much uncertainty with what the federal government will do with mortgage rates in the near future, while the hemorrhaging has slowed, it hasn’t stopped,” said Galgiani. “This bill is urgently needed as taxpayers will have limited time to amend their tax filings to reflect the changes SB 907 is proposing.”
State income tax law generally defines cancelled debt as a form of income. Without additional legislation to exclude cancelled mortgage debt, many Californians are essentially taxed on “phantom income” they never received. Galgiani noted that one constituent in particular, who received $100,000 in debt forgiveness from his lender, is now facing a tax bill of over $11,000.
“It’s unacceptable that the state would essentially receive a ‘windfall’ in tax dollars on the backs of homeowners who held on and worked with their lending institution in order to avoid foreclosure” said Galgiani. “The federal government has already extended this debt forgiveness and now California needs to follow suit.”
The measure, supported by a coalition of banks, realtors, homeowners and consumer groups has been sent to the Governor for his consideration. # # #