BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1416 - Walters
Amended: February 19, 2010
Hearing: May 12, 2010 Tax Levy Fiscal: Yes
SUMMARY: Exempts from Income Any Gain from the Sale of a
Principal Residence for Taxpayers Over the Age of
65.
EXISTING STATE AND FEDERAL 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.
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
THIS BILL exempts from income the gain from the sale
or exchange of the principal residence of taxpayers aged 65
years or older.
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FISCAL EFFECT:
According to the Franchise Tax Board (FTB), SB 1416
results in revenue losses of $21 million in 2010-11, $19
million in 2011-12, and $20 million in 2012-13.
COMMENTS:
A. Purpose of the Bill
SB 1416 seeks to ease the tax burden experienced by
seniors 65 years of age or older from the sale of their
homes. By providing this tax relief, seniors' increased
financial burden, which often comes with selling a home, is
eased substantially.
B. Marginal Benefit?
Federal and state law provide copious benefits to
individuals seeking to purchase homes (homebuyer tax
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
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in $3.1 billion less revenue.
Given the copious benefits afforded homeowners
financed by the general taxpayer through either higher
general taxes or lower services, what marginal benefit will
taxpayers receive from SB 1416? Seniors generating capital
gains from sales within the existing exclusion will be
unaffected by the measure, but seniors with higher gains
will receive a considerable benefit from excluding gains
from sales above the exemptions thresholds, benefiting
seniors with more valuable homes, or higher gains.
Lowering taxes on seniors is a laudable goal; however, the
benefit granted by this measure will come on top of many
other benefits and likely benefit those who may not require
the help in these trying economic times.
Support and Opposition
Support:California Association of Realtors
Oppose:None received.
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Consultant: Colin Grinnell