California Bankers Association Announces Support for Legislative Measure to Provide Important Tax Relief to Underwater Homeowners
SACRAMENTO – The California Bankers Association (CBA) announced today its sponsorship of Senate Bill 339 (Cannella, R – Ceres), which will extend important tax relief to borrowers who under this legislation will not be required to report the amount of debt forgiven by a lender due to a principal reduction resulting from a loan modification. The measure applies to debt forgiven from January 1, 2013, to December 31, 2013.
“California’s banking industry is pleased to provide its full support to this legislation,” said Rodney Brown, CBA’s president and CEO. “CBA believes when debt is forgiven by a lender as part of an agreement with a borrower during the loan modification process, the borrower should not be penalized on their state income taxes.”
Last year the CBA was a co-sponsor on two measures, Senate Bill 30 and Assembly Bill 42, that sought to provide homeowners with the same solution. The measures failed during the committee hearing process, meaning that homeowners who received a principal reduction in 2013, will owe state income tax on the amount of forgiven debt. According to the latest report by the California Monitor, which tracks progress on the national mortgage settlement for the California Attorney General’s Office, the three largest servicers alone forgave more than $9 billion dollars in mortgage debt from April 2012 through August 2013 through principal reductions. During this timeframe, more than 84,000 Californians received principal reductions, and the average first mortgage principal reduction was $137,280. Without SB 339, thousands of Californians could easily be elevated into a higher tax bracket for income tax purposes based upon forgiven mortgage debt.
“Distressed borrowers who received mortgage assistance in 2013, may be surprised to learn they now have a state tax liability resulting from California’s failure to conform to federal law last year, despite having done so every year since 2007,” said Brown. “The Legislature has been clear that efforts should be made to keep borrowers facing foreclosure in their homes; however the subsequent tax impact resulting from California’s non-conformity may create a tax burden that jeopardizes those very borrowers.”
About the CBA
Established 122 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant educational and legislative solutions to some of California’s more pressing financial and banking issues, including financial empowerment, identity theft, financial privacy, and financial elder abuse. CBA’s membership includes the majority of California’s commercial, industrial and community banks and savings associations.