The California Association of Realtors recently mailed out a letter out explaining some of the latest bills introduced on their behalf to protect the real estate industry in California.
One of the bills, SB30, concerns state taxes due under the latest laws, for forgiven mortgage debt. Below is a portion of the letter, which explains how SB30 could affect you:
While debt relief has been extended at the federal level, the California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now.
We’re aware of your concerns this could have on short sales, and that’s why C.A.R. is sponsoring SB 30 (Calderon, D-Montebello). SB 30 will conform state law to the federal law passed last week. Upon passage of SB 30, the measure will be effective retroactive to Jan. 1, 2013.
Here are other housing-related provisions included in the federal law:
The “Pease Limitations” that reduced the value of itemized deductions, including the mortgage interest deduction, are permanently repealed for most taxpayers but will be reinstituted for high income filers. This provision reduces a taxpayer's itemized deductions by 3 percent of the amount of his or her adjusted gross income (AGI) that exceeds the threshold amount. Under the new law, the Pease thresholds are $300,000 for married taxpayers filing jointly and $250,000 for single taxpayers (i.e., a married couple with an AGI of $400,000 would be $100,000 over the threshold; the couple’s deductions would be reduced by $3,000 which is 3% of $100,000). No matter how high a taxpayer's AGI, the Pease reduction cannot exceed 20 percent of the amount of itemized deductions otherwise allowable for the year.
The restoration of a tax deduction for mortgage-insurance premiums, including premiums paid to the Federal Housing Administration and private mortgage insurers. This provision expired at the end of 2011 but has now been retroactively extended for all of 2012 as well as 2013.
10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Capital gains rates will remain at 15 percent for those earning less than $400,000 (individual) and $450,000 (joint). Gains above those income levels will be taxed at 20 percent. Gains on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 taxpayers filing jointly.
For more information, you can read a complete version of SB 30 online.