Governor Brown Signs into Law California Bankers Association Sponsored Legislation Providing Important Tax Relief to Homeowners with Forgiven Mortgage Debt
SACRAMENTO – The California Bankers Association (CBA) released the following statement regarding the signing of Assembly Bill 1393 (Perea), which extends important tax relief to borrowers, who as a result of this legislation, will not be required to report as income the amount of debt forgiven by a lender due to a principal reduction resulting from a loan modification. The measure applies to debt forgiven from January 1, 2013, to December 31, 2013, and was signed into law today by Governor Brown.
“California’s banking industry is pleased to have provided its full support to Assembly Bill 1393,” said Rodney Brown, CBA’s president and CEO. “CBA has long advocated for the passage of this legislation, and last year was a co-sponsor on two measures, Senate Bill 30 and Assembly Bill 42, that sought to provide homeowners with the same solution. Both measures failed during the committee hearing process, meaning that homeowners who received a principal reduction in 2013, owed state income tax this year on the amount of forgiven debt.
“During this timeframe, several thousand Californians received principal reductions, with the average first mortgage principal reduction approximately $137,000. Prior to the passage of AB 1393, thousands of Californians may very well have been elevated into a higher tax bracket for income tax purposes based upon forgiven mortgage debt.
“Over the past several years the California Legislature has been clear that efforts should be made to keep borrowers facing foreclosure in their homes, enacting more than six dozen mortgage and foreclosure related bills. California’s banking community believed that enacting legislation exempting distressed borrowers who received mortgage assistance from state tax liability was a key component to helping borrowers stay in their homes, and Governor Brown’s signing of AB 1393 represents an important victory for these California homeowners.”
About the CBA
Established 122 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 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.