Panel OKs Tax Write-Offs for Home Sales

In a move to help beleaguered home sellers in the tepid state real estate market, an Orange County lawmaker is pushing a measure that would allow those who lose money on a sale to write it off on their taxes.

The bill by state Sen. John R. Lewis (R-Orange) won approval Wednesday on a 6-0 vote in the Senate Revenue and Taxation Committee but faces an uphill fight to get signed into law.

Under the measure, SB 100, taxpayers could deduct any loss they realize in the sale of their personal residences. Currently, home sellers have to pay taxes on any profit they make in a sale if they don’t purchase another residence within two years but cannot declare a capital loss.

That hasn’t historically been a problem in the booming California real estate market, where home prices normally soared.

But in the 1990s, with the downturn in prices in high-flying regions like Orange County, homeowners who sold suffered sharp losses and were unable to recoup some of it with tax write-offs.

Lewis called his bill “a tax equity measure.”

“If we are going to tax homeowners on the profit or capital gain from the sale of their residence,” Lewis said, “I believe it is only fair to allow a tax deduction on the loss on the sale of a home.”

He noted that while California’s economy has picked up of late, many real estate markets--including Orange County’s--have failed to return to their historic highs of the late ‘80s.

The bill would allow sellers to take a capital loss the same way they write off other deductions for downturns on personal investments such as mutual funds. The homeowner must have lived in the residence for 24 consecutive months prior to the sale. In addition, the loss is limited to $250,000. It would affect any sale after July 1, 1997.

While the measure is welcome news for many home sellers in Orange County, it faces a tough road in the Legislature. The bill goes next to the Senate Appropriations Committee, where it could die because it would cost the state money.

Legislative analysts estimate the state would lose $5 million during its first year and $8 million the second.

Lewis, however, said those numbers are tiny in the context of a multibillion-dollar state budget.

“The bottom line,” Lewis declared, “is that SB 100 is a fairness issue, and a tax deduction that is long overdue.”