AB 42, as amended, Perea. Taxation: cancellation of indebtedness: mortgage debt forgiveness.
The Personal Income Tax Law conforms to specified provisions ofbegin delete the federal Mortgage Forgiveness Debt Relief Act of 2007, as amended by the federal Emergency Economic Stabilization Act of 2008,end deletebegin insert federal lawend insert relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from an individual’s income if that debt is discharged after January 1, 2007, and before January 1, 2013, as provided.begin insert The federal American Taxpayer Relief Act of 2012 extended the operation of those provisions to debt that is discharged before January 1, 2014.end insert
This bill would make findings and declarations regarding mortgage debt forgiveness and would state the intent of the Legislature to enact legislation that would conform to federal law with regard to any extension of the exclusion described above.
end deleteThis bill would conform to the federal extension.
end insertbegin insertThis bill would take effect immediately as a tax levy.
end insertVote: majority.
Appropriation: no.
Fiscal committee: begin deleteno end deletebegin insertyesend insert.
State-mandated local program: no.
The people of the State of California do enact as follows:
begin insertSection 17144.5 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is amended to read:end insert
(a) Section 108(a)(1)(E) of the Internal Revenue Code, is modified to provide that the amount excluded from gross income shall not exceed $500,000 ($250,000 in the case of a married individual filing a separate return).
(b) Section 108(h)(2) of the Internal Revenue Code, is modified by substituting the phrase “(within the meaning of section 163(h)(3)(B), applied by substituting ‘$800,000 ($400,000’ for ‘$1,000,000 ($500,000’ in clause (ii) thereof)” for the phrase “(within the meaning of section 163(h)(3)(B), applied by substituting ‘$2,000,000 ($1,000,000’ for ‘$1,000,000 ($500,000’ in clause (ii) thereof)” contained therein.
begin insert(c) The amendments made by Section 202 of the American Taxpayer Relief Act of 2012 to Section 108 of the Internal Revenue Code shall apply.
end insert(c)
end deletebegin insert(d)end insert This section shall apply to discharges of indebtedness occurring on or after January 1, 2007, and, notwithstanding any other law to the contrary, no penalties or interest shall be due with respect to the discharge of qualified principal residence indebtedness during the 2007 or 2009 taxable year regardless of whether or not the taxpayer reports the discharge on his or her return for the 2007 or 2009 taxable year.
This act provides for a tax levy within the meaning of
26Article IV of the Constitution and shall go into immediate effect.
The Legislature finds and declares all of the
28following:
29(a) A homeowner can lose his or her job or become seriously
30ill and then be unable to pay the monthly mortgage. In the resulting
31short sale or foreclosure, the homeowner not only loses his or her
32home, but may also be taxed on relief of indebtedness income that
33the homeowner did not receive.
34(b) If the homeowner refinances his or her mortgage, as many
35homeowners do, the nature of the debt is changed and the
36homeowner may be personally liable for the payment of that debt.
P3 1(c) Absent an extension of the debt forgiveness protections
2beyond this year,
homeowners will again be subject to taxation on
3income they never actually received.
It is the intent of the Legislature to enact legislation
5that would extend the operation of Section 17144.5 of the Revenue
6and Taxation Code, relating to the exclusion of the discharge of
7qualified principal residence indebtedness from an individual’s
8income, to conform to any federal legislation that extends the
9operation of this exclusion in federal income tax law.
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