Politics & Government

Realtors give $500k to California Dems and short-sale dispute ends

The California Association of Realtors’ political action committee gave $500,000 to the state Democratic Party the day before the Democrat-dominated Franchise Tax Board effectively resolved a months-long legislative fight over the state’s tax treatment of short sales.

Tuesday’s donation, reported Wednesday evening, matches the $500,000 the Realtors gave state Democrats in May. The group also gave the party $168,000 earlier in the year and more than $1 million in 2012. The 2013 contributions, by far the largest to the party in the current election cycle, will help Democratic attempts to keep their two-thirds legislative supermajorities in 2014.

Realtors and other supporters say this week’s Franchise Tax Board opinion will help continue the housing recovery and assist the owners of up to 55,000 underwater properties expected to be sold in California in 2014. Realtors spokeswoman Lotus Lou said the timing of the action and the donation to the Democrats’ main campaign committee was coincidental.

Denise Azimi, a spokeswoman for the Franchise Tax Board, said the board simply was acting on a request for clarification on the issue by Board of Equalization member George Runner.

The Franchise Tax Board is separate from the Board of Equalization, another tax board. Its three members are Controller John Chiang, Board of Equalization Chairman Jerome Horton, and state Finance Director Michael Cohen, who answers to Gov. Jerry Brown. All are Democrats.

Azimi said none of the three knew of Runner’s request for information, one of many received by the agency. “We were giving our opinion on what the IRS said,” she said.

This week’s action follows months of uncertainty and legislative debate about whether forgiven mortgage debt on the sale of a home would be treated as taxable income in 2014.

In a Wednesday letter to Runner, Franchise Tax Board chief counsel Jozel Brunett cited an IRS letter requested by U.S. Sen. Barbara Boxer. The IRS letter has not been released publicly but, in a recent press release, Boxer said the IRS made it clear that “families will not face a burdensome tax penalty just as they are trying to rebuild their lives with a short sale.”

Runner praised the tax board’s interpretation. “We learned last month they wouldn’t face a federal tax penalty. We now know they won’t face a state tax hit either,” he said in a statement.

In the same statement, California of Realtors President Kevin Brown praised the “recent clarifications” as protecting “distressed homeowners from debt relief income tax associated with a short sale in California.”

Such an administrative fix was never mentioned as a possibility during this year’s legislative fight over the issue that spilled into a heated Senate campaign.

The real estate industry supported a Senate bill to extend the tax break, which would cost the state an estimated $55 million through June 2015. Senate Democrats tied the measure to an industry-opposed bill that would impose a $75 fee on real-estate transactions to raise money for affordable housing. Both bills passed the Senate but stalled in the Assembly.

The battle became part of last summer’s close race for the Central Valley’s 16th Senate District. Realtors injected hundreds of thousands of dollars into the campaign, either attacking Democrat Leticia Perez or supporting Republican Andy Vidak, who won.

“We are not convinced that ‘one-party control’ of the Legislature can or will produce effective policy development for California,” association President Don Faught wrote in a July email to The Sacramento Bee.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, at the time accused the Realtors of “scorched-earth” tactics.

Steinberg’s office declined to comment on this week’s actions. State Sen. Mark DeSaulnier, D-Concord, the author of the transaction fee bill, said he would continue to push the measure next year. State Sen. Ron Calderon, D-Montebello, the author of the now-moot bill to extend the tax break, praised the tax board for providing “relief and protection for struggling homeowners.”