Out of work for more than a year, Dale Ottley was relieved when she was able to sell her Woodland Hills condominium for $230,000 – even though it was a “short sale” on which she lost $200,000.
Now she faces the possibility of having to pay state income tax on the $200,000 debt that her mortgage holder erased when she sold her condo for less than she’d paid for it.
“That would be monumentally unfair,” said Ottley, who is still looking for an accounting job. “It wasn’t income to me. It just stopped the (financial) hemorrhaging for me.”
Ottley and an estimated 35,000 other former homeowners in California could be hit with big tax bills because they completed a short sale in 2009.
While federal law has exempted forgiven debt from income tax since 2007, the state of California hasn’t yet followed suit.
And Gov. Arnold Schwarzenegger last week vetoed legislation that would have exempted short sellers from paying taxes on debt forgiven in those transactions.
In his veto message, Schwarzenegger said he killed the bill, SB X832, because lawmakers had inserted provisions for tax penalties opposed by businesses – not because of the short-sale issue.
But representatives of legislators at the forefront of the debt forgiveness effort said this week they expect a new bill will be passed and signed before the April 15 tax filing deadline.
