Sacramento-area residents are almost certain to get state tax relief for 2009 forgiven mortgage debt - eventually.
First, allow for politics.
On Monday, Gov. Arnold Schwarzenegger signaled his intent to veto a wide-ranging bill that - among other provisions - bans the state from taxing debt forgiven in short sales and loan modifications.
But the governor's spokesman said Schwarzenegger is "absolutely, 100 percent" committed to ensuring that Californians who escaped one harrowing financial encounter with lenders don't have another with the state this year. A majority of lawmakers have repeatedly said the same.
"We're looking to get this done with another bill," said Schwarzenegger spokesman Aaron McLear on Monday. McLear said the governor is looking at AB 1779 by Assemblyman Roger Niello, R-Fair Oaks, and SB X6 14 by Sen. Ronald Calderon, D-Montebello. Both would prevent the state from labeling forgiven mortgage debt as extra new income and taxing it.
The federal government has banned such taxes through 2012. California lawmakers and the governor banned them in 2007 and 2008, but haven't reached agreement yet for 2009. Niello's proposal extends protections through 2010; Calderon's through 2013.
The governor's veto threat stems from a dispute with the Democratic-controlled Legislature over SB X8 32, a bill passed by both houses in recent days. McLear said Schwarzenegger will likely veto it over a business tax issue unrelated to the forgiven mortgage debt issue.
The governor opposes a clause that penalizes the state's largest businesses for seeking some tax refunds. Businesses, backed by such groups as the California Chamber of Commerce, say they sometimes overpay taxes to avoid penalties for underpaying. But some businesses routinely fish for refunds whether or not they're fairly owed one, said Democrats, pointing to similar prevention measures by the federal government.
"This anti-fraud provision was adopted by the Bush administration in 2007," Alicia Trost, spokeswoman for Senate President Pro Tem Darrell Steinberg, D-Sacramento, said in a statement Monday.
The forgiven mortgage debt and business refund provisions are among dozens in a bill that aligns many of the state's tax codes with those of the federal government.
--Call The Sacramento Bee's Jim Wasserman, (916) 321-1102 or email him at [email protected]. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.