Senator Anthony Cannella (R-Ceres) today applauded Governor Jerry Brown’s signing of AB 1393, by Assemblymember Henry Perea, legislation to provide tax relief for homeowners who have received home loan modifications in 2013. Cannella was principal co-author on AB 1393 and also authored a similar legislation, SB 339. Previously, those receiving modifications would have to report the amount of debt forgiven by a lender due to a principal reduction as taxable income. AB 1393 had an urgency clause, which allowed it to become law immediately after being signed by Governor Brown.
“This is great news for our region, which was at the epicenter of California’s housing market collapse and is still rebounding from the effects,” said Cannella. “Taxing hardworking, responsible homeowners who are making every effort possible to stay in their homes is counterproductive. This new law will ensure homeowners still recovering from the housing market downturn can remain in their homes and continue to pay their mortgages without being penalized for doing the right thing.”
Before 2013, California law provided homeowners who received a principal reduction the same tax relief provided by the federal Mortgage Debt Relief Act of 2007. Since the state law expired in 2013, California homeowners will owe state income tax on the amount of forgiven debt. The state’s three largest servicers provided more than 84,000 Californians principal reductions, forgiving more than $9 billion dollars in mortgage debt from April 2012 through August 2013, according to the California Monitor, which tracks progress on the national mortgage settlement for the California Attorney General’s Office. Without legislative action, thousands of Californians could easily be elevated into a higher tax bracket for income tax purposes based upon forgiven mortgage debt.
For the counties of the 12th Senate District, this new law will provide important tax relief for 3,500 mortgages that have received modifications from the state’s three largest servicers, reflecting nearly $400 million in principal reductions.