California Bankers Association Announces Plans to Again Sponsor Legislation Extending Important Tax Relief to Homeowners

Press release Beth Mills

SACRAMENTO – The California Bankers Association (CBA) announced today its intention to sponsor a bill in 2015 that will extend important tax relief to homeowners who received a principal reduction from a loan modification, or completed a short sale, in 2014. Under the bill, homeowners would not be required to report the amount of debt forgiven as taxable income. The measure will apply to debt forgiven from January 1, 2014, to December 31, 2014. In July, Governor Brown signed into law Assembly Bill 1393 (Perea), which applied the same tax treatment to debt forgiven through a loan modification or short sale occurring in 2013.

“With the federal government likely to extend mortgage debt forgiveness for 2014, it’s important California follow suit and provide tax relief to California homeowners who were on the brink of losing their homes due to the mortgage crisis,” said Assemblymember Henry Perea (D-Fresno). “I am proud to introduce legislation that will again prevent an undue hardship on these homeowners who would otherwise be required to pay income tax on the value of their home loan that was forgiven by a bank. A lot of families in financial trouble were granted a loan modification from their lender and cannot afford to pay taxes on money they never received. This bill will help hard working families stay in their homes.”

“California’s banking community is pleased to once again provide its full support to this legislation,” said Rodney Brown, CBA’s president and CEO. “CBA shares the belief that when debt is forgiven by a lender as part of an agreement with a borrower during the loan modification process, or upon completion of a short sale, the borrower should not be penalized on their state income taxes.”

“During the past several years, the Legislature has been clear that measures should be taken to keep borrowers facing foreclosure in their homes, and we hope they will continue to support these important efforts,” Brown concluded.

About the CBA

Established more than 123 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 adult 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.