BILL ANALYSIS
AB 1806
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Date of Hearing: May 10, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 1806 (Hagman) - As Amended: March 25, 2010
VOTE ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income tax: sale of principal residence:
surviving spouse.
SUMMARY : Conforms to Internal Revenue Code (IRC) Section
121(b)(4), relating to an exclusion from income for capital
gains recognized by a surviving spouse upon the disposition of
his/her principal residence. Specifically, this bill :
1)Allows, by reference to IRC Section 121(b)(4), a surviving
spouse to exclude from gross income up to $500,000 (instead of
$250,000) of the gain from the sale or exchange of the
principal residence owned jointly with a deceased spouse,
provided that the sale or exchange occurs within two years of
the death of the spouse.
2)Requires the surviving spouse to be an unmarried individual.
3)Specifies that all of the special ownership and use
requirements otherwise applicable to married couples filing a
joint tax return must be met.
4)Applies to sales or exchanges that occur on or after January
1, 2010.
5)Takes effect immediately as a tax levy.
EXISTING FEDERAL LAW:
1)Allows an individual taxpayer to exclude up to $250,000
($500,000 if married filing a joint return) of gain realized
on the sale or exchange of a principal residence. To be
eligible for the exclusion, the taxpayer must have owned and
AB 1806
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used the residence as a principal residence for at least two
of the five years ending on the sale or exchange. A taxpayer
who fails to meet these requirements by reason of a change of
place of employment, health, or unforeseen circumstances, to
the extent provided under regulations, is able to exclude an
amount equal to the fraction of the $250,000 ($500,000 if
married filing a joint return).
2)Limits the exclusion to account for periods of "nonqualified
use," e.g. when the property is rented out or otherwise does
not qualify as a principal residence, for sales occurring
after December 31, 2008.
3)Provides that, for sales after December 31, 2007, if a married
couple was otherwise eligible for the $500,000 maximum
exclusion with respect to a principal residence immediately
prior to the death of one of the spouses, then the unmarried
surviving spouse is eligible for a maximum exclusion of
$500,000 on the sale of the residence if such sale occurs not
later than two years after the date of death of such spouse.
[The Mortgage Forgiveness Debt Relief Act of 2007, Public Law
110-142 (MFDRA)].
EXISTING STATE LAW conforms to federal law relating to the
exclusion of gain from the sale of a principal residence by
reference to IRC Section 121 as of the "specified date" of
January 1, 2009. (Revenue and Taxation Code Section 17152).
The MFDRA increased the amount of the gain exclusion on the sale
of a principal residence by a surviving spouse to $500,000, and
therefore, California has already conformed to these provisions.
Therefore, under existing California law, a surviving spouse
may already exclude only up to $500,000 of capital gain
recognized on the sale of his/her principal residence.
FISCAL EFFECT : None
COMMENTS : On April 12, 2010, the Governor signed into law SB
401 (Wolk), Chapter 14, Statutes of 2010. In its final form, SB
401 was a comprehensive California-federal conformity measure
that includes the provisions of AB 1806. Therefore, AB 1806 is
unnecessary.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 1806
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None on file
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098