Proposed law helps homeowners in foreclosure

SACRAMENTO – Bonnie Lowenthal and the majority of the state Assembly on Thursday voted to take at least a little sting out of the housing market meltdown, passing a measure that would lift a heavy tax burden from those who lose their homes to foreclosure.

Under existing law, when someone lost their home to foreclosure or short sale, they were on the hook for an unexpected tax hit. They had to pay income tax on the amount of money the bank wrote off – as if the money were a gift from the bank.

All that would change under Senate Bill 401, which was approved by the full Assembly Thursday.

“I’m very happy to help repeal that old tax law,” said Assemblymember Lowenthal, D-Long Beach. “It’s cruel and it defies common sense.”

Economists say nearly 34,000 Californians could benefit from SB 401.

SB 401 also brings California state tax law into conformity with more recently enacted federal tax law.  By aligning state and federal tax laws the process of filing tax returns will be simplified for both taxpayers and tax preparers.

The measure is part of a larger, Democratic-led effort to assist homeowners who are struggling financially and the larger housing market.  They recently passed a law that provides a tax credit of up to $10,000 to Californians who are buying their first home or purchasing a new home.

Contact: Will Shuck @ (916) 319-2054