For the past couple of years, the Federal Housing Finance Agency had been considering lowering the limits for Fannie Mae and Freddie Mac conforming loans. Lowering the loan limits would dramatically affect the real estate market in high-cost areas like California. This action would have made it even more difficult for buyers to get loans as well as hamper homeowners trying to refinance.
The California Association of Realtors as well as the National Association of Realtors jumped into action. Their aggressive efforts educating legislators and making clear that this action could derail the housing recovery have been rewarded.
Just before Thanksgiving, the FHFA announced it will retain the existing 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac at $417,000 on one-unit properties in most areas and a cap of $625,500 in high-cost areas. CAR and NAR have long advocated with our legislators on this issue, and as a result of their efforts, Congress made the maximum conforming loan limits at $625,500 permanent. This is a real victory for our market in Santa Barbara and the real estate recovery nationwide.
Last Wednesday, the California Franchise Tax Board issued a statement that it will not tax homeowners when they short-sell their homes. This conforms to the Internal Revenue Service regulation that income from a short sale, due to debt forgiveness on non-recourse loans, is not taxable income.
Kevin Brown, 2014 CAR president, stated: "Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales. We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California. We would like to thank Sen. Boxer and BOE member George Runner for their leadership in obtaining this guidance from the IRS and FTB. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year."
As always, consult with your tax advisor regarding your personal tax situation and contact your local Realtor for assistance with your home buying and selling needs.
— Laurel Abbott is a real estate agent with Berkshire Hathaway California Properties and president of the Santa Barbara Association of Realtors. Contact her at firstname.lastname@example.org or 805.879.8050. The opinions expressed are her own.