BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SJR 20 - Alquist
Introduced: January 25, 2010
Hearing: April 28, 2010 Fiscal: No
SUMMARY: Urges Congress and the President to Exempt from
Capital Gains All Proceeds from the Sale of a
Principal Residence for a Senior Citizen Aged 65
or Above.
EXISTING FEDERAL AND STATE LAW allows taxpayers to
exclude up to $250,000 single/$500,000 joint in income
resulting from the sale of their principal residence.
Additionally, taxpayers may adjust the basis of inherited
property upward to fair market value at the time of the
decedent's death. Therefore, any appreciation in the
property's value that occurred prior to the decedent's
death is exempted from capital gains taxation.
THIS RESOLUTION makes a request from the Legislature
to Congress and the President of the United States to enact
legislation to eliminate capital gains taxes on the sale of
a principal residence by a senior citizen 65 years of age
or older. The resolution also makes findings to support
the request, and resolves that the Secretary of the Senate
transmit copies of the resolution to specified elected
officials.
FISCAL EFFECT:
According to committee staff, the resolution does not
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directly affect state revenue.
COMMENTS:
A. Purpose of Bill
According to the Author, "Federal and state income tax
laws impose capital gains taxes upon the sale of capital
assets, including a qualifying principal residence. When a
taxpayer sells a qualifying principal residence, he or she
is allowed to exclude from income up to $250,000 ($500,000
for joint returns). Any gain over and above this amount is
taxed as a capital gain, regardless of the taxpayer's age.
A senior citizen who is 65 years of age or older is equally
subject to capital gains taxes on the sale of his or her
principal residence even if he or she will be moving into a
unit within an assisted living facility, continuing care
retirement community, or similar, where there may be heavy
upfront fees. Oftentimes, when a senior citizen, who is
65 years of age or older, sells his or her principal
residence, it is because their home is too big to take care
of and/or too expensive to maintain on the senior citizen's
fixed income. Therefore, a senior citizen is usually
selling his or her principal residence in order to
downsize, reduce expenses, and financially prepare for the
costly long-term care needs they will likely have in the
future. SJR 20 would provide that the California
Legislature respectfully requests Congress and the
President to enact legislation to eliminate the capital
gains tax on the sale of a principal residence by a senior
citizen who is 65 years of age or older. Such an
elimination of the capital gains tax would enable senior
citizens to be better equipped to plan for their long-term
care housing needs as they grow older."
B. A Necessary Benefit?
Federal and state law provide copious benefits to
individuals seeking to purchase homes (homebuyer tax
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credits, government-backed mortgages, Federal Reserve
purchases of Agency MBS and debt), owning homes (mortgage
interest deductions, deductibility of property taxes,
acquisition-value property taxation), and selling homes
(principal residence capital gains exclusion and inherited
property basis step-up described above, plus Proposition
60/90 property tax base year value transfers for seniors
and the disabled). These generous benefits help
Californians purchase homes and build better communities,
but are not without costs. For just the capital gains
exclusion, the Department of Finance estimates that this
tax benefit results in more than $3.7 billion in foregone
revenue to the state in 2009-10. The basis step-up results
in $3.1 billion less revenue.
In a perfect world, few would argue that seniors
should face a large tax bill when selling a home,
especially when they must pay large, up-front fees when
moving from their home into a senior community. However,
SJR 20 asks the federal government to eliminate from
capital gains the proceeds of a sale of a principal
residence above the threshold of the existing exclusion,
which would solely benefit those taxpayers who receive more
than $250,000 or $500,000 from the sale of a principal
residence. As such, the only beneficiaries of Congress
acting on SJR 20's request would be those seniors with
relatively valuable homes. While Congress has been
generous with tax incentives in recent years, the U.S.
Treasury also issued nearly one-third of a trillion dollars
in debt in the month of March, 2010 alone. Additionally,
if Congress were to enact the measure at the Legislature's
behest, taxpayers would ask California to conform its laws
to grant the same benefit, which could worsen the state's
fiscal condition.
Support and Opposition
Support:None received.
SJR 20 - Alquist
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Oppose:California Tax Reform Association
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Consultant: Colin Grinnell