Will California Homebuyers Get Tax Relief?

Today, the Governor of California, Arnold Schwarzenegger, issued a Press Release regarding a letter sent to legislative leaders urging action on the budget and job creation for the state. The state legislators have been notoriously late on delivering a budget to the Governor as mandated by the state's constitution. With another $20 billion deficit looming on the horizon and 12.5% unemployment in the state, the legislature, according to the letter, has only sent bills that reduce the deficit by $200 million. The state is still spending $600 million more per month than it takes in.

Schwarzenegger has asked for bills that will stimulate the economy and create jobs, two (2) of which affect homeowners and the real estate industry.

• Protection for homeowners from being taxed on "Short Sales" when they are forced to sell their homes for less than they owe on their mortgage.

Under current conditions, mortgage debt forgiveness is taxable with the Franchise Tax Board (FTB). That is, if a homeowner has $100,000 of mortgage debt forgiven, that $100,000 is added to that homeowner's ordinary income. So if you made $75,000 and had a mortgage debt forgiven of $100,000, your income for that year would be $175,000. Schwarzenegger says, "Send me a clean bill that protects homeowners from this tax immediately, and I will sign it.".

The IRS also has this provision, but has provided tax relief through 2012.

• Extension of the very successful $10,000 tax credit for first-time homebuyers purchasing new homes.

While I personally like this provision, it narrowly helps those purchasing new homes. And, more significantly, it helps builders get rid of excess housing inventory - a great benefit to them. It does nothing to help those purchasing existing homes. I would like to see this proposal expanded to help the entire homebuying public as it would stimulate sales and alllow existing homeowners that need to sell compete with the builder/developer.

So will California homebuyers and sellers receive tax relief? Stay tuned...