The N.C. House voted 67-42 Tuesday for a bill that updates the tax code and would tax all income homeowners receive from a short sale.
While most of Senate Bill 726 wasn’t controversial, the short sale provision sparked a lengthy debate between Democrats and Republicans.
A short sale is when someone sells property for a price that’s less than what they owe on their mortgage loan; mortgage lenders must agree to the sale. So if someone owes $200,000 but sells their home for $180,000, they’d owe state taxes on the $20,000 difference. The federal government does not tax that amount.
Democrats said the tax is unfair. “We are taxing many, many people in the middle class who are caught up in this mortgage debt issue,” said Rep. Paul Luebke, a Durham Democrat. “There surely ought to be some opportunity for people who are in difficult financial straits to not be taxed on that amount.”
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Republicans disagreed. Rep. Jeff Collins of Rocky Mount noted that he’s fully paid off his home but would likely take a loss if he sold it today.
“Nobody’s going to give me a tax break on that loss,” Collins said. “A lot of us did the right thing and paid our bills and did not ask the state to bail us out.”
The rest of the bill updates state law to reflect changes in the federal tax code. It would also clarify that state compensation for people who were wrongfully imprisoned would not be taxable.
The Senate passed the bill 32-15 last week. The House is scheduled to take a final vote Wednesday, which will send the bill to Gov. Pat McCrory’s desk.