BILL ANALYSIS
SJR 20
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Date of Hearing: June 28, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony Portantino, Chair
SJR 20 (Alquist) - As Amended: May 5, 2010
Majority vote.
SENATE VOTE : 32-0
SUBJECT : Taxation: sale of principal residence.
SUMMARY : Urges the Congress and the President of the United
States (U.S.) to enact legislation that would increase the
amount of capital gain excludable from income if it is realized
by a senior citizen 65 years of age or older on the sale of
his/her principal residence. Specifically, this bill :
1)Makes a request from the Legislature to Congress and the
President of the U.S. to enact legislation that would do all
of the following:
a) Increase the amount of non-taxable gain realized on the
sale of the qualifying principal residence by a senior
citizen 65 years of age or older from $250,000 to $500,000
for single filers and from $500,000 to $750,000 for joint
filers.
b) Limit the seniors' eligibility for the increased amount
of non-taxable gain only to seniors who pay for long-term
care costs, including long term care insurance premiums,
entrance fees to assisted living facilities, continuing
care retirement communities, and senior congregate living
facilities.
2)Makes findings to support the request and resolves that the
Secretary of the Senate transmit copies of the resolution to
specified elected officials.
EXISTING 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
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eligible for the exclusion, the taxpayer must have owned and
used the residence as his/her 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 January 1, 2009, if a married
couple is 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)].
FISCAL EFFECT : None
COMMENTS :
1)Author's Statement . The author states that, "SJR 20 would
urge Congress and the President to enact legislation to
increase the amount of gain a senior citizen, who is 65 years
of age or older and who pays for long-term care costs, is
allowed to exclude from income, from $250,000 to $500,000, and
from $500,000 to $750,000 for joint returns, from the sale of
the qualifying principal residence of the senior citizen.
"Such an increase in the amount a senior citizen could exclude
from taxation as a capital gain would help seniors plan for
their long-term care, whether by assisting seniors to buy into
an assisted living facility or continuing care retirement
community, or by purchasing long-term care insurance, or by
paying for long-term care services along the continuum of care
as they age.
"In sum, SJR 20 would incentivize seniors to do the right thing,
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and plan for their future, long-term health care needs, rather
than to stick their heads in the sand and to stay in a home
that is too expensive for them to care for and too big for
them to manage."
2)Background . Under existing California law, an individual
taxpayer may exclude up to $250,000 of gain realized on the
sale or exchange of a principal residence. To be eligible for
the exclusion, the taxpayer must have owned and used the
residence as his/her principal residence for at least two of
the five years ending on the sale or exchange. A husband and
a wife who file a joint return for the taxable year in which
they sell their principal residence may exclude up to $500,000
of gain, provided that at least one of the spouses owned it
and both spouses have used the property as their principal
residence for the required period of time. The Department of
Finance (DOF) estimates that this tax benefit results in more
than $3.7 billion in foregone revenue in 2009-10.
In addition, homeowners may deduct interest payments of up to
$500,000 ($1 million in the case of joint returns) of
indebtedness used to purchase a first and second home, and up
to $100,000 in home improvement loans. The DOF estimates that
this tax benefit results in more than $5.4 billion in foregone
revenue in 2009-10. Finally, taxpayers who purchase a house
in 2009 may be entitled to both the federal and state home
purchase tax credits.
3)Tax Relief for Registered Domestic Partners . The federal law
does not recognize same-sex couples who are married under
state law. Thus, under federal law, registered domestic
partners will not benefit from the tax relief granted to
surviving spouses pursuant to Internal Revenue Code Section
121. However, existing California law treats a domestic
registered partner as a spouse for purposes of the Personal
Income Tax Law. The term "domestic partner" means an
individual partner in a domestic partner relationship within
the meaning of Family Code Section 297.
4)What Does this Bill Do? As discussed, existing federal and
state tax laws already provide generous benefits to
individuals seeking to purchase homes to build better
communities. 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
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home into a senior community. 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. However, as such, the only beneficiaries
of Congress acting on SJR 20's request would be those seniors
with relatively valuable homes. While this bill asks Congress
to increase the exclusion amount only for taxpayers who incur
long-term health care costs, it does not limit the eligibility
to those seniors who otherwise are not able to afford the long
term care. The Committee may wish to consider amending this
measure to address this issue.
REGISTERED SUPPORT / OPPOSITION :
Support
California Senior Legislature
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098