BILL ANALYSIS �
AB 42
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Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 42 (Perea) - As Amended: April 8, 2013
Policy Committee: Revenue and
Taxation Vote: 8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill extends, for one additional taxable year, the tax
relief for income generated from the discharge of qualified
principal residence indebtedness. Specifically, this bill:
1)Provides Internal Revenue Code Section 108, relating to income
from discharge of mortgage debt, as amended by the Federal
American Taxpayer Relief Act (FATRA), shall apply, except as
otherwise specified.
2)Applies to discharge of mortgage debt occurring on or after
January 1, 2013, and before January 1, 2014.
3)Takes effect immediately as a tax levy.
FISCAL EFFECT
The Franchise Tax Board (FTB) estimates an annual revenue loss
of $50 million in fiscal year (FY) 2013-2014, and $5 million in
FY 2014-15.
COMMENTS
1)Purpose . The author states AB 42 would extend the tax relief
on forgiveness of mortgage debt by conforming California law
to federal law. The author notes a higher than average
unemployment rate has persisted for years and left many
Californians without the resources to sustain their mortgages,
while the mortgage crisis drove down home values and left many
homeowners owing more than their home is worth. After
foreclosure, mortgage refinancing, or short sale of a home, a
AB 42
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bank can cancel or forgive thousands of dollars of an
individual's mortgage debt. The author argues without
additional legislation to exclude cancelled mortgage debt,
many California may be taxed on income they never actually
received.
2)Support . Proponents of this bill, including the California
Association of Bankers and the California Association of
Realtors, state that AB 42 seeks to provide full conformity to
the federal rules relating to income from discharge of
indebtedness in order to grant additional tax relief to
individuals who can least afford a tax bill after losing their
home. CalTax notes this bill provides conformity with federal
tax law and simplifies compliance for taxpayers.
3)Background . In 2008, the Legislature approved SB 1055
(Machado), Chapter 282, which provided modified conformity to
the federal Mortgage Forgiveness Debt Relief Act (MFDRA) for
discharge of mortgage indebtedness in 2007 and 2008 tax years.
In 2010, the Legislature enacted SB 401 (Wolk), Chapter 14,
Statutes of 2010, to extend the mortgage debt forgiveness
provision until January 1, 2013.
On January 2, 2013, the federal government enacted FATRA as
part of the fiscal cliff deal. FATRA extended the exclusion
from gross income for cancellation of indebtedness generated
from the discharge of mortgage debt, as provided for by the
MFDRA, for one additional taxable year, beginning on or after
January 1, 2013.
4)There is no registered opposition to this bill .
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081