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Legislators Push Short Sale Tax Relief

A bi-partisan group of California lawmakers is backing legislation that would offer tax relief for struggling homeowners pushed into short sales.

A short sale occurs when a lender agrees to let a borrower sell a home for less than what the borrower owes; a practice that became more common during the housing meltdown. Under current state law, the debt forgiven by the lender is taxable income. The new bill would exempt borrowers from that tax for the rest of this year.

“You’re out of your home," commented Republican State Senator Joel Anderson, who co-authored the bill. "You’re desperately looking for a place to live and get back to some level of normalcy in your life and yet we would be taxing you this year, so you get hit with a huge tax, as if you hit the lottery, and it’s just the opposite.”


The bill would bring California into line with federal law, which exempts such forgiven debt from taxable income. The Franchise Tax Board said the measure would cost California about $50 million in lost revenue this year.

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