SACRAMENTO, CA – Assemblyman Marc Steinorth (R-Rancho Cucamonga) introduced legislation to permanently exempt mortgage debt relief from income tax. The bill, AB 2234, will remove a major financial obstacle for vulnerable homeowners or those selling their home.
Currently under California law, mortgage debt that is cancelled through a short sale, loan modification, or foreclosure is treated as income for tax purposes. The taxation was suspended from 2007 through 2014, in conformity with similar measures at the federal level. However, the suspension has been inactive since the start of 2015. Assembly Bill 2234 would forever exclude the forgiveness of mortgage debt from being taxed as income at the state level, including any relief that occurred since 2014.
“The last thing the state should be doing is punishing those who have lost their homes or are struggling to pay their mortgages with higher taxes,” said Steinorth. “California’s recovery from the recession remains sluggish and homeowners are still getting back on their feet. We can help that recovery by allowing them to keep more of their hard-earned income during such a critical time.”
Mortgage debt relief remains a critical issue for homeowners across the state. California has a larger percentage of homes underwater compared to most states, according to data from a 2015 CoreLogic report. Roughly 457,000 homes have negative equity, representing nearly 6.8% of all households statewide. The Riverside-San Bernardino region ranks as the third- worst in the nation, with 11.4% of its households holding negative equity. Upon refinancing, short sale, or foreclosure, such households could make use of the reauthorized tax relief under AB 2234.
“Taxing mortgage debt is the government’s way of kicking middle class families while they’re down. This legislation will provide relief to struggling families in the hopes they are able to get back on their feet and hold onto more of their hard earned money.”
Assemblyman Steinorth represents the 40th Assembly District which includes Rancho Cucamonga, San Bernardino, Highland, Loma Linda, and Redlands.
