BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 30 (Calderon) - Cancellation of Indebtedness: Mortgage Debt
Forgiveness
Amended: March 6, 2013 Policy Vote: G&F 6-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Ingenito, Robert
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 30 would exclude qualified mortgage debt that
is forgiven by a lender during the 2013 taxable year from
California taxable income, in partial conformity to the federal
Mortgage Forgiveness Debt Relief Act of 2007.
Fiscal Impact (as approved on May 23, 2013): The Franchise Tax
Board (FTB) estimates that SB 30 would result in General Fund
revenue losses of $50 million in 2013-14 and $5 million in
2014-15.
Background: Debt that is forgiven or cancelled by a lender is
generally treated as income on a tax return, and is thus
taxable. Current law generally requires a taxpayer to include a
cancellation of debt as taxable income in the year in which the
"discharge of indebtedness" occurs, with specified exceptions.
Existing federal law, the Mortgage Forgiveness Debt Relief Act
of 2007, initially excluded qualified principal residence
indebtedness that is discharged from January 1, 2007 through
December 31, 2009 from federal taxable income. The exclusion was
subsequently extended through January 1, 2013, and most recently
extended a third time (through January 1, 2014). Married
taxpayers filing jointly may exclude up to $2 million in
qualified principal residence indebtedness that is forgiven by a
lender, while married persons filing separate or single
taxpayers may exclude up to $1 million. California law provided
a partial exclusion until January 1, 2013.
Proposed Law: SB 30 would conform state tax law to the federal
Mortgage Forgiveness Debt Relief Act of 2007, with the following
exceptions:
Taxpayers may only exclude from their income up to $250,000
(single filers)/$500,000 (joint filers) of cancelled debt, and
SB 30 (Calderon)
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Taxpayers may only exclude indebtedness on loans up to
$400,000 (single filers)/$800,000 (joint filers). Taxpayers
must first reduce any amount excluded for state tax purposes
by any debt forgiven on loan amounts above these thresholds.
Related Legislation: As noted above, California partially
conformed to federal law initially in 2008 (SB 1055, Machado)
and a second time in 2010 (SB 401, Wolk).
Staff Comments: This bill would provide income tax relief to
distressed homeowners by allowing borrowers who have negotiated
a cancellation of debt by a lender as a result of restructuring
a mortgage loan or a short sale on a principal residence to
exclude the amount of forgiven debt from income for state tax
purposes. The exclusion applies to the forgiveness of debt
incurred to purchase, construct or improve a principal
residence, as defined.
The FTB's estimate of revenue loss employs a "top-down"
methodology that begins with the exclusion's estimated revenue
loss nationally (prepared by the Joint Committee on Taxation)
and then applies "California factors" to determine the amount of
the estimated loss that would occur in California.
The committee amendments would add an urgency clause and make
enactment contingent upon enactment of SB 391.