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:
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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Limitations” that reduced the value of itemized deductions, including the mortgage interest deduction, are permanently repealed for most taxpayers but will be reinstituted for high income filers.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.
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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.
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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.
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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.
Yep, a real panacea.
Oh and forgiven debt certainly is considered income. Go ask the IRS if you don't believe me. If the IRS forgives debt that debt is fully taxable as income. Are you sure you live in America?
But the perspective I'm looking at isn't about the speculator trying to quickly flip properties to score some quick profits. If a gambling speculator loses his bet, the government shouldn't give him a break. He took the risk and lost. End of story. He should lick his wounds and hope for better luck next time. But what I am looking at are those who bought a home that's now underwater and then lost their job because of a slow economy. These are the folks who have every intent of doing the right thing... honoring their debt obligation... but due to circumstances beyond their control, are now unable to afford their payment. They weren't speculating; They were living the American Dream. And I think that they shouldn't be punished by the IRS deciding that their forgiven debt is "income." Nonetheless, I definitely get your point. (Now what REALLY makes me mad as hell is that those who intentionally perpetrated this fraud on America... a handful of lenders... STILL have not been punished.)
Wall Street bankers are crooks. I agree. But so at the homeowners who got way over their heads in debt and then pawned their mistakes off on the American taxpayers. I know if the story is too close to home that some people would get defensive here. But if it quacks, waddles and has feathers you gotta call it a duck.
Even though I don't see your bio under this blog, I appreciate your professional experience in 'the business'. Although most of this is about 'morality' and 'the rule of law', something that some of us have as much expertise in as you, if not more. To claim that someone who takes out a loan does not understand that they have to pay the loan back is absurd. Were they giving home loans out to 3rd graders? I though one had to be of legal age to obtain one. Bankers were giving out loans that they KNEW their clients would not be able to pay back, based upon their less than ideal credit histories and non-existent or low incomes. But they did it anyway. The big banks actually SHORTED the market when they sold the poisoned mortgage-backed securities (MBS) to unwary investors. They KNEW the market would blow up. Some of the executive risk managers warned the CEO's and were ignored. So, those were blatant acts of FRAUD that none were help criminally liable for. So much of it wasn't about "ignorance" at all, Ms. Henry. Those were WILLFUL ACTS where the outcome was practically guaranteed, but they did it anyway. It was about a lack of moral code and violations of the rule of law.
I heard that homeowners who sell their homes will be forced to pay a tax on the proceeds as a result of ObamaCare, so that we can fund free healthcare for millions. Do you know how much that tax will be (what percent of the gain) and when it takes effect? And if I am a homeowner who is forced to pay this tax, can I get free healthcare at any California ER like the illegals are allowed to? There should be a benefit to those who are forced to pay the tax. That's why I ask. Thank you in advance for your response.
Socialist logic never made any sense to me either. IMO people who think that forgiven debt should not be taxed as income have a screw loose. Otherwise, why even worry about not complying with the CONTRACTUAL terms that one entered into when accepting a loan? Really screwy thinking.
I heard that if one happens to work for the government that student debt is forgiven after 10 years. But if you work in the private sector the student debt follows you for life!!! HAH! And student debt cannot be dissolved through bankrupcy. So the banker is incentivized to hand out high risk loans to bad credit risks because he makes his money and is guaranteed to get it back since all student loans are federally guaranteed! HAH! This is exactly how the housing market crashed!!! HAH! It's all so bizarre, Missy. But the socialist hand-wringers will NEVER give you ALL the FACTS. They will tell you only what THEY want you to hear!!! HAH! :^)
Once the general population are strong again, back on their feet, feeling good about themselves and their country, feeling good about their futures, not resenting, fearing, hating, blaming or killing, they may have the desire to help others. If it takes helping an old lady stay active (I'm not promoting frauding the system), or helping people get their homes rebuilt so we don't have thousands of homeless people become a part of our culture, if it means lifting someone up while they are down for awhile (because I promise you it will all change AGAIN in a quarter of a century), then so be it! Visit India, or Africa, or the middle East and see what happens to people who don't lift each other up....
Petition to stop the banks from getting the tax break for foreclosure abuse deals
Great PBS special on The Untouchables talking about the Wall Street Crooks
That is why people sell insurance policies, Ms. Henry. To help people rebuild after a disaster. If a homeowner lives in his home without insurance then why should I bail him out? He created his own problem. He should fix it. If one cannot afford to buy insurance one really should not own a home. Sell it and rent. Yes, the government should rebuild public roads and public facilities. But the government should not bail out private land owners. Responsibility means protecting one's OWN assets. When one lose them and do not have the insurance to cover the loss - shame on him or her. And don't come to me for a handout. "To me it's the same thing...we're in a period of time where the entire country is in a difficult situation and in order to keep the country in top financial and psychological shape, we should help one another get out of the mess we're in no matter who's to blame." You are promoting those who are self-sufficient and responsible to bail out those who aren't. That does not create a prosperous nation. Rewarding the irresponsible and punishing the responsible promotes a terrible incentive, Ms. Henry. It creates a nation of 'irresponsibles' and damages the integrity and the viablity of our society. People follow the incentives. If scofflaws are incentivized we will become a nation of scofflaws. Is that what you want?
A lift up to get back on their feet so they can again be a productive contribution to our society...
people tend to trust their bankers to tell them if they can afford the house or not..based on their expertise... and at the time...the market was going up up up and everyone wanted a piece of the pie...put it into perspective...remember the buying frenzy? NO ONE ever thought it was possible that the market would tank...I have no idea why...because to me and others familiar with these markets, it could be logical...but since we've never experienced this kind of an economy...remember? the thinking? the denial?the times?
And I think we may have found some common ground here. I think churches and charitable organizations should help the unfortunate like they have throughout our history instead of relying on government to fix all the problems. Today churches are directing the unfortunate to government social services instead of doing the heavy lifting by being part of the solution. We have 47 million people on food stamps. 1 out of every 6 Americans! That's atrocious! Perhaps it's time for the churches and charitable organizations to feed them instead! It is simply bankrupting our society! And with the HUGE debtload facing the younger generations it is virtually unsustainable mathematically. Unless we get a handle on the problem TODAY it will get much worse TOMORROW! But if people get themselves in financial difficulty by taking out loans that they cannot afford, wastefully spending the money that they have, living in an irresponsible manner, etc...the they are victims of their own actions and they should figure out a way to get themselves out of it! If someone is always there to save them, they never learn, Ms. Henry. They become perpetual scofflaws since there is an incentive to be one. People follow the inventives! Always!
Peasants are always going to take whatever you give them. The ones who gave them (no or low incomes, bad credit risks, etc...) the loans should have know better. But they WILLFULLY ignored the risks that would inevitably crash the economy. It was almost as if the whole thing was planned (perhaps it was. who knows?). So I hold the BIG BOYS most responsible for sure. But it took a village. And the peasants were part of that village. And that is why I must include them as part of the problem. That's as honest as I can get.