‘Phantom Income' Forgiveness Extended in California

Paul Stewart, SAMCAR Government Affairs Director | July 24, 2014

Last week, Gov. Jerry Brown signed Assembly Bill 1393 (Perea), which extends tax relief on forgiveness of mortgage debt by conforming California law to federal law for the 2013 tax year. SAMCAR and C.A.R. supported the bill so that homeowners will not be charged state income tax on 'phantom income' when they've had a mortgage loan modified to reduce the principal. Previously, the forgiven debt created by a reduction in principal (e.g., loan modification) wasn't subject to federal income tax, but was taxable (though held in abeyance) under state law.

SAMCAR members will recall this issue was held up by the Legislature in attempting to get C.A.R. to remove its' opposition to Senate Bill 391 (DeSaulnier – with Co-Authors Senator Jerry Hill and Assemblymen Rich Gordon and Kevin Mullin) which would have imposed a new statewide $75 per document recording tax on a variety of real estate transactions. SB 391 died in committee.

AB 1393 will provide much-needed state-level tax relief to homeowners facing financial hardship and is great news for homeowners. In January of last year, the President signed into law an extension of the mortgage debt tax forgiveness for 2013; a bill supported by both Rep. Anna Eshoo and Jackie Speier. California, as noted previously, had yet to pass legislation for tax code conformance for 2013.

TAGGED: AB 1393, California, Governor Jerry Brown, Perea, Phantom Income, SB 391, tax, tax relief

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