BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 99 (Perea) - Personal income taxes: income exclusion:
mortgage debt forgiveness.
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: May 20, 2015 |Policy Vote: GOV. & F. 7 - 0 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: Yes |Mandate: No |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: June 29, 2015 |Consultant: Robert Ingenito |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 99 would extend the state exclusion of mortgage
forgiveness debt relief for one additional year, through taxable
year 2014.
Fiscal Impact: The Franchise Tax Board (FTB) estimates that the
bill would result in General Fund revenue losses of $47 million
in 2014-15 and $5.2 million in 2015-16. FTB would incur minor
administration expenses.
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.
AB 99 (Perea) Page 1 of
?
Existing federal law, the Mortgage Forgiveness Debt Relief Act
of 2007 (MFDRA), 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, such that it is currently
effective through the end of taxable year 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 has
provided a partial exclusion until January 1, 2014, with the
following exceptions:
Taxpayers may only exclude from their income up to
$250,000 (single filers)/$500,000 (joint filers) of
cancelled debt.
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.
Proposed Law: This bill would continue the State's modified
conformity to MRDFA for discharges of qualified principal
residence indebtedness until January 1, 2015.
Related Legislation: AB 1393 (Perea, Chapter 152, Statutes of
2014), conformed California law to the one-year federal
extension of mortgage forgiveness debt relief provided in the
American Taxpayer Relief Act of 2012 (i.e., for discharges that
occurred in 2013), with prior state-law modifications.
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
AB 99 (Perea) Page 2 of
?
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.
-- END --