Wednesday, March 10, 2010

Unemployment hits new high, and state tax releif for short sales?

Inland Southern California's job base continues to absorb body blows, as January's unemployment soared to an all-time high of 15 percent, a state report released Wednesday found.

Two years of recession has cost Riverside and San Bernardino counties more than 160,000 jobs, the state Employment Development Department reported. That means that there are no longer jobs for roughly one in eight Inland residents who had been working before 2008 started. It also means the recession has wiped out the five years of solid growth the Inland area experienced before the collapse of housing-related industries pulled the economy into an abyss. And the damage has not stopped. The January jobless rate, up from 14.1 percent in December, is more than three times what it was four years ago, when virtually everyone looking for a job in the Inland area found one. Part of the increase was attributed to people who had stopped looking for work but decided to get back into the job market after the first of the year.

The jobless rate was 15.1 percent in Riverside County and 14.8 percent in San Bernardino County. Riverside County almost always has higher unemployment because it's computed based on home addresses, and Riverside County has more residents who commute to other counties.

There was job growth in 31 states, although in many cases it wasn't enough to lower the unemployment rate. California's unemployment of 12.5 percent was the fifth highest. Despite some ripples of economic life, there are no clear signs employers will be hiring. Matt Thalmeyer, president of Arrow Staffing, a Redlands-based temporary agency, said there have been short stretches in the early weeks of 2010 when orders for workers picked up, but they don't last. And, there is still a steady flow of applicants looking for short-term jobs, he said.

"Our clients are saying they're not expecting to do much of anything, and maybe not even anything big, until the third or fourth quarter," Thalmeyer said. The state is reporting about 74,000 fewer Inland residents were drawing paychecks in January than in the same month in 2009

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Tax relief for short sales from the state might be coming. Most people know the federal gov has a program to forgive the taxes on the forgiven debt from a short sale or foreclosure. Few people know that you are still on the hook for state tax though.

State legislation to protect people who lose their houses in foreclosure or short sales from a big tax bill passed a significant hurdle this week, winning Assembly approval. The state Senate is expected to vote on the proposal Thursday.

Passing the Assembly by a 47-27 vote, the bill authored by Sen. Lois Wolk (D-Davis) would exempt people who did short sales or received loan modifications or lost their houses in foreclosure last year from having to pay state tax on any mortgage debt that was forgiven. Otherwise the forgiven debt would be considered income for the homeowners even though they received no money from the sale of their home.

Both the state and federal government extended a lifeline to homeowners in 2007 when the market was flooded with mortgage failures by temporarily exempting the tax on forgiven debt. However, while the federal exemption continues through 2012, the state's expired at the end of 2008.

Winter said a person with an annual income of $50,000 and $100,000 of debt cancelled on a house would be "on the hook" for about $8000 in additional income tax. He said most likely some of his clients would be forced into bankruptcy.

Many people who thought they were exempt from the debt forgiveness tax under both the state and federal law, Hewitt said, were shocked to receive 1099 forms in the mail from their lenders that need to be filed with their tax returns to report the cancelled debt.

As state law now stands not all homeowners who have a foreclosure, short sale or loan modification will take a state tax hit. According to the Senate Revenue and Taxation Committee, for example, debt forgiven on a first mortgage used to buy a house even now is not taxable. That is not true, however, if the original mortgage is refinanced and money taken out to buy a car or for another investment.

2 comments:

The Yen Guy said...

2009 was the fifth consecutive year that more residents left California than moved to California from other states, I suggest a family move out of Southern California to Whatcom County, Washington, specifically Semiahmoo, Birch Bay or to a farm in the county; the reason being I see another Great Depression Coming and it will be better in a rural area where there are fewer people.

I salute the Governor, extreme cuts are needed.

My understanding is that forgiveness will be granted to people who ran up home loans and then used their homes as an ATM machine; that type of thing should not be forgiven; but probably will be.

theY said...

Funny, the state is DYING for money, but lets these people off the hook? They should change the law so you have 8 years to pay back $8000...a reverse of the original Federal tax credit that was supposed to be paid back over time.