A bill that updates references to federal tax code in state law drew opposition this week for changes detractors said will add to the burdens of people in financial distress.
Part of the Senate Bill 726 would make any income that homeowners get from the short-sale of their residences taxable by the state.
A short-sale is where the mortgage holder, instead of foreclosing, agrees to a home sale for an amount that won’t cover the debt.
Sen. Jane Smith, a Lumberton Democrat, used the example of a home sold for $80,000 when the homeowner owes $100,000. The homeowner doesn’t get the $20,000 – Smith called it “phantom money” – but under the bill, the state would tax it. The federal government does not tax it.
“It’s not forgiven and it’s not income,” she said. “This is in effect kicking someone when they’re down.”
The bill passed 32-15 Thursday largely along party lines. Three Democrats voted for it and two Republicans voted against it. Senate Minority Leader Dan Blue said most Democrats voted against it because of the mortgage tax provision.