Short Sales NOT SUBJECT to State or Federal Income Tax for Cancellation of Debt

Just in time for the holidays! This is very big news for Californians involved in short sale transactions. This is not a temporary fix, but rather a long-term solution in addressing tax liability on short sales in California. Details from C.A.R.'s legal team below. 

Short sales in California are generally not subject to state or federal income tax for cancellation of debt. The Franchise Tax Board (FTB) issued a letter yesterday stating that, as nonrecourse obligations, short sales in California are not subject to state income tax for cancellation of debt. The FTB's position conforms with the federal treatment of short sales stated in an IRS letter as we previously reported on November 15. These letters will provide welcome relief for short sale sellers given that the tax break for a qualified principal residence under the federal Mortgage Forgiveness Debt Relief Act of 2007 will expire at the end of this year, and similar protection under California law already expired in 2012. The FTB letter includes transactions that closed in 2012 but, as always, sellers should consult with their own tax professionals.

According to the recent FTB letter, "a California taxpayer would not have cancellation of indebtedness where the taxpayer was involved in a short sale pursuant to CCP section 580e." Section 580e of the California Code of Civil Procedure (CCP) generally protects borrowers from owing a deficiency after a short sale of a residential property with one-to-four units, including both first and junior trust deeds. Exceptions include fraud, waste, cross-collateralized loans, and borrowers that are corporations, LLCs, or limited partnerships. For more information, C.A.R. members may refer to our legal article on Short Sale Deficiencies (login required).

As with the IRS letter, the FTB letter states that even if no cancellation of debt income is owed, a taxpayer may nevertheless have capital gains to the extent that the outstanding debt exceeds the tax basis for the property. A principal residence, however, is generally excluded from capital gains tax up to $250,000 for single taxpayers and $500,000 for married couples filing joint returns (under 26 U.S.C. § 121).

This will affect real estate homeowners that were forced to short sell their homes in Monterey County including the cities of Carmel, Carmel Valley, Pacific Grove, Pebble Beach, Monterey, Salinas Monterey Highway, Seaside and Marina.

California Short Sale Tax Liability Update

I would be remiss if I did not include the following disclaimer prior to diving into this issue:

REALTORS® should encourage their clients to seek the advice of a tax professional regarding the tax consequences of a short sale.

As most of you know, SB 401 which extended the income tax debt forgiveness on short sales in California (conforming state tax code to federal tax code) expired at the end of 2012. At that same time, Congress passed budget resolutions to avoid the "fiscal cliff," which included an extension of the mortgage debt forgiveness sunset date (federal tax law) to January 1, 2014.

This year, C.A.R. sponsored SB 30 that would once again conform the state tax law to the federal law, extending mortgage debt forgiveness through January 1, 2014. Unfortunately, SB 30 met extensive political scheming which ultimately led to its demise in the legislature this year.

So what does all of this mean for short sales which occurred (or are occurring) in California in 2013? Good question.

There are efforts underway to see SB 30 (or similar legislation) enacted prior to April 14, 2014 with a retroactive provision back to January 1, 2013. This would essentially conform (retroactively) the CA State tax law with the Federal law for tax year 2013.

Regardless of what happens with the state mortgage debt forgiveness extension, it's important to remember that the Federal mortgage debt forgiveness provision sunsets on January 1, 2014, meaning the "forgiveness" of mortgage debt will subside at the end of this calendar year.

Having said that, there is a potential caveat to this entire process which has many (including myself) raising a brow in cautious optimism.

Per a recent letter from the Internal Revenue Service, (IRS) "A short sale in California is generally not subject to federal income tax for mortgage debt forgiveness." This determination has the potential to set the stage for a long term fix for short sale transactions in California and could potentially alleviate the need for additional legislation to address this issue.
The California Association of REALTORS® (C.A.R.) worked closely with Senator Barbara Boxer to obtain this IRS guidance and there is now hope that similar guidance can be given from the California Franchise Tax Board (FTB) to address state income tax for mortgage debt relief income.

Given that a homeowner in California generally cannot be held personally liable for a short sale deficiency, the IRS stated in its letter that it would consider the mortgage loan as a nonrecourse obligation that is not subject to federal debt relief income tax. The amount of indebtedness, however, must be reported as the amount realized for capital gains purposes. Of course, a principal residence is generally excluded from capital gains tax up to $250,000 for single taxpayers and $500,000 for married couples filing joint returns (under 26 U.S.C. § 121).

As background, California law generally protects a borrower from owing a deficiency after a short sale of a residential property with one-to-four units, including both first and junior trust deeds (Cal. Code of Civ. Proc. section 580e). Exceptions include fraud, waste, cross-collateralized loan, and a borrower that is a corporation, LLC, or limited partnership. For more information, see C.A.R.'s legal article on Short Sale Deficiencies.

Stay tuned, I will keep you posted as this issue develops.

...again, REALTORS® should encourage their clients to seek the advice of a tax professional regarding the tax consequences of a short sale.

Salinas Monterey Highway Real Estate News for October 2013

Salinas Monterey Highway: Home Sales Down in Oct 2013

Salinas Monterey Highway Real Estate Year-Over-Year

• Median home prices increased by 33.3% year-over-year to $800,000 from $600,000.
• The average home sales price rose by 16.1% year-over-year to $897,941 from $773,630.
• Home sales fell by 52.2% year-over-year to 11 from 23.
• Active listings fell 18.1% year-over-year to 95 from 116.
• Sales price vs. list price ratio fell by 0.0% year-over-year to 95.9% from 95.9%.
• The average days on market fell by 33% year-over-year to 43 from 64.

Salinas Monterey Highway Real Estate Compared To Last Month

• Median home prices improved by 12.0% to $800,000 from $714,500.
• The average home sales price fell by 2.1% to $897,941 from $916,929.
• Home sales Down by 21.4% to 11 from 14.
• Active listings dropped 6.9% to 95 from 102.
• Sales price vs. list price ratio dropped by 1.3% to 95.9% from 97.2%.
• The average days on market dropped by 47.4% to 43 from 82.

- See more at: 

- To see more details including graphs and the following Salinas Monterey Highway Real Estate Statistics, click here:

• Monterey Salinas Highway Median Home Price
• Monterey Salinas Highway Average Sales Price
• Monterey Salinas Highway No. of Homes Sold
• Monterey Salinas Highway Pending Properties
• Monterey Salinas Highway Foreclosures Sold
• Monterey Salinas Highway Short Sales Sold
• Monterey Salinas Highway Active Listings
• Monterey Salinas Highway Active Foreclosures
• Monterey Salinas Highway Active Short Sales
• Monterey Salinas Highway Sales Price vs. List Price
• Monterey Salinas Highway Average Days on Market
• Monterey Salinas Highway Year over Year Sales to Date
• Monterey Salinas Highway Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Monterey Salinas Highway Sales and Price
• Monterey County Market Momentum

Pebble Beach Real Estate News for October 2013

Pebble Beach: Home Sales Down in Oct 2013

Pebble Beach Real Estate Year-Over-Year

• Median home prices increased by 19.6% year-over-year to $1,130,000 from $945,000.
• The average home sales price rose by 32.9% year-over-year to $1,436,960 from $1,081,500.
• Home sales rose by 12.5% year-over-year to 9 from 8.
• Active listings fell 0.0% year-over-year to 84 from 84.
• Sales price vs. list price ratio fell by 2.2% year-over-year to 93.4% from 95.5%.
• The average days on market fell by 38.1% year-over-year to 101 from 162.

Compared To Last Month

• Median home prices slipped by 43.5% to $1,130,000 from $2,000,000.
• The average home sales price fell by 47.6% to $1,436,960 from $2,743,870.
• Home sales Down by 18.2% to 9 from 11.
• Active listings dropped 3.4% to 84 from 87.
• Sales price vs. list price ratio increased by 2.3% to 93.4% from 91.3%.
• The average days on market increased by 18.1% to 101 from 85.

- To see more details including graphs and the following Pebble Beach Real Estate Statistics, click here:

• Pebble Beach Median Home Price
• Pebble Beach Average Sales Price
• Pebble Beach No. of Homes Sold
• Pebble Beach Pending Properties
• Pebble Beach Foreclosures Sold
• Pebble Beach Short Sales Sold
• Pebble Beach Active Listings
• Pebble Beach Active Foreclosures
• Pebble Beach Active Short Sales
• Pebble Beach Sales Price vs. List Price
• Pebble Beach Average Days on Market
• Pebble Beach Year over Year Sales to Date
• Pebble Beach Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Pebble Beach Sales and Price
• Pebble Beach Market Momentum

Pacific Grove Real Estate News for October 2013

Pacific Grove: Home Sales Down in Oct 2013

Pacific Grove Real Estate Year-Over-Year

• Median home prices increased by 14.2% year-over-year to $701,450 from $614,000.
• The average home sales price rose by 51.1% year-over-year to $945,367 from $625,571.
• Home sales fell by 42.9% year-over-year to 12 from 21.
• Active listings fell 37.7% year-over-year to 48 from 77.
• Sales price vs. list price ratio fell by 2.1% year-over-year to 96.2% from 98.3%.
• The average days on market rose by 83.6% year-over-year to 86 from 47.

Pacific Grove Real Estate Compared To Last Month

• Median home prices improved by 1.9% to $701,450 from $688,500.
• The average home sales price rose by 33.2% to $945,367 from $709,708.
• Home sales Down by 7.7% to 12 from 13.
• Active listings dropped 11.1% to 48 from 54.
• Sales price vs. list price ratio dropped by 1.2% to 96.2% from 97.3%.
• The average days on market dropped by 27.5% to 86 from 118.

- To see more details including graphs and the following Pacific Grove Real Estate Statistics, click here:

• Pacific Grove Median Home Price
• Pacific Grove Average Sales Price
• Pacific Grove No. of Homes Sold
• Pacific Grove Pending Properties
• Pacific Grove Foreclosures Sold
• Pacific Grove Short Sales Sold
• Pacific Grove Active Listings
• Pacific Grove Active Foreclosures
• Pacific Grove Active Short Sales
• Pacific Grove Sales Price vs. List Price
• Pacific Grove Average Days on Market
• Pacific Grove Year over Year Sales to Date
• Pacific Grove Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Pacific Grove Sales and Price
• Pacific Grove Market Momentum

Monterey Real Estate News for October 2013

Monterey: Home Sales Down in Oct 2013

Monterey Real Estate Year-Over-Year

• Median home prices increased by 80.3% year-over-year to $595,000 from $330,000.
• The average home sales price rose by 65.3% year-over-year to $624,538 from $377,778.
• Home sales rose by 44.4% year-over-year to 13 from 9.
• Active listings fell 10.6% year-over-year to 59 from 66.
• Sales price vs. list price ratio rose by 3.7% year-over-year to 98.0% from 94.5%.
• The average days on market rose by 69.1% year-over-year to 51 from 30.

Monterey Real Estate Compared To Last Month

• Median home prices slipped by 5.1% to $595,000 from $627,000.
• The average home sales price fell by 2.9% to $624,538 from $643,000.
• Home sales Down by 38.1% to 13 from 21.
• Active listings dropped 10.6% to 59 from 66.
• Sales price vs. list price ratio dropped by 0.4% to 98.0% from 98.4%.
• The average days on market increased by 14.4% to 51 from 44.

- To see more details including graphs and the following Monterey Real Estate Statistics, click here:

• Monterey Median Home Price
• Monterey Average Sales Price
• Monterey No. of Homes Sold
• Monterey Pending Properties
• Monterey Foreclosures Sold
• Monterey Short Sales Sold
• Monterey Active Listings
• Monterey Active Foreclosures
• Monterey Active Short Sales
• Monterey Sales Price vs. List Price
• Monterey Average Days on Market
• Monterey Year over Year Sales to Date
• Monterey Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Monterey Sales and Price
• Monterey Market Momentum

Carmel Valley Real Estate News for October 2013

Carmel Valley: Home Sales Down in Oct 2013

Carmel Valley Real Estate Year-Over-Year

• Median home prices increased by 12.0% year-over-year to $1,058,500 from $945,000.
• The average home sales price rose by 24.3% year-over-year to $1,191,750 from $958,571.
• Home sales fell by 42.9% year-over-year to 4 from 7.
• Active listings fell 6.4% year-over-year to 102 from 109.
• Sales price vs. list price ratio rose by 5.6% year-over-year to 98.3% from 93.1%.
• The average days on market fell by 76.1% year-over-year to 21 from 87.

Carmel Valley Real Estate Compared To Last Month

• Median home prices improved by 9.1% to $1,058,500 from $970,000.
• The average home sales price rose by 31.5% to $1,191,750 from $906,000.
• Home sales Down by 20% to 4 from 5.
• Active listings dropped 2.9% to 102 from 105.
• Sales price vs. list price ratio increased by 7.3% to 98.3% from 91.6%.
• The average days on market dropped by 64.2% to 21 from 58.

- To see more details including graphs and the following Carmel Valley Real Estate Statistics, click here:

• Carmel Valley Median Home Price
• Carmel Valley Average Sales Price
• Carmel Valley No. of Homes Sold
• Carmel Valley Pending Properties
• Carmel Valley Foreclosures Sold
• Carmel Valley Short Sales Sold
• Carmel Valley Active Listings
• Carmel Valley Active Foreclosures
• Carmel Valley Active Short Sales
• Carmel Valley Sales Price vs. List Price
• Carmel Valley Average Days on Market
• Carmel Valley Year over Year Sales to Date
• Carmel Valley Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Carmel Valley Sales and Price
• Carmel Valley Market Momentum

Carmel Real Estate News for October 2013

Carmel: Home Sales Down in Oct 2013

Carmel Real Estate Year-Over-Year

• Median home prices fell by 16.7% year-over-year to $1,007,500 from $1,210,000.
• The average home sales price dropped by 9.5% year-over-year to $1,197,200 from $1,322,980.
• Home sales fell by 50% year-over-year to 10 from 20.
• Active listings fell 17.9% year-over-year to 138 from 168.
• Sales price vs. list price ratio rose by 0.4% year-over-year to 96.5% from 96.1%.
• The average days on market fell by 11.8% year-over-year to 128 from 145.

Carmel Real Estate Compared To Last Month

• Median home prices slipped by 20.2% to $1,007,500 from $1,262,250.
• The average home sales price fell by 27.6% to $1,197,200 from $1,653,160.
• Home sales Down by 44.4% to 10 from 18.
• Active listings dropped 8% to 138 from 150.
• Sales price vs. list price ratio increased by 2.6% to 96.5% from 94.1%.
• The average days on market increased by 12.1% to 128 from 114.

- To see more details including graphs and the following Carmel Real Estate Statistics, click here:

• Carmel Median Home Price
• Carmel Average Sales Price
• Carmel No. of Homes Sold
• Carmel Pending Properties
• Carmel Foreclosures Sold
• Carmel Short Sales Sold
• Carmel Active Listings
• Carmel Active Foreclosures
• Carmel Active Short Sales
• Carmel Sales Price vs. List Price
• Carmel Average Days on Market
• Carmel Year over Year Sales to Date
• Carmel Days of Inventory Sales Breakdown (Bank Owned vs Short Sales vs Normal Sales)
• Carmel Sales and Price
• Carmel Market Momentum

Forest Avenue and Pine Avenue Neighborhood, Pacific Grove, CA 93950

The Forest Avenue and Pine Avenue neighborhood is a desirable area centrally located in the heart of Pacific Grove, CA just above the old retreat neighborhood. What makes the Forest Avenue and Pine Avenue neighborhood so desirable to those who live there is its relatively flat terrain and the fact it is within walking distance to all Pacific Grove, New Monterey and Cannery Row has to offer. Lover’s Point, downtown Pacific Grove shopping, Lighthouse Shopping District in Monterey, Cannery Row and the Pacific Grove waterfront are all short walks from this convenient neighborhood.

This neighborhood butts up to the Washington Park & Marino Pines neighborhood on its western border of Congress Avenue. The Old Retreat neighborhood is to the north with Lighthouse being the border. Sinex Avenue and the Candy Cane Lane neighborhood is the southern border and basically New Monterey (Eardley and 2nd St) make up the border to the east.

Pacific Grove’s Forest Avenue and Pine Avenue neighborhood has the oldest elementary school in all of Pacific Grove named Robert Down Elementary School. Many families who have purchased homes to take advantage of Pacific Grove’s schools like the Forest Avenue and Pine Avenue area as it is close to Pacific Grove High School, PG Middle School and Robert Down.

Pacific Grove’s Forest Avenue and Pine Avenue Area Real Estate

Real Estate in the Forest Avenue and Pine Avenue area of Pacific Grove is eclectic. Homes range in this area from the early 1900's Pacific Grove Victorian cottages and arts and crafts style homes (craftsman homes), to mid-century modern and contemporary homes, plus everything in between. Lots are a bit larger here than in other parts of Pacific Grove and it is common to see street to alley lots on many of the homes for sale here. Ocean view homes are not common based on the makeup of the terrain and as such average prices and median prices are lower than some other parts of Pacific Grove that do have Ocean views.

If you are looking for a great neighborhood to call home and you like to get out and walk, meet neighbors, go to the park, but still be close to Cannery Row, Lovers Point, downtown Pacific Grove shopping/restaurants and everything else that makes Pacific Grove the special place to live that it is, the Forest Avenue and Pine Avenue neighborhood might be right for you. 

Our website has detailed information including Forest Avenue and Pine Avenue real estate statistics if you are interested in learning more about real estate values in this Pacific Grove, CA neighborhood. If you are interested in seeing homes for sale in the Forest Avenue and Pine Avenue area, check out the Forest Avenue and Central Avenue Real Estate page on our site or contact us.