SB 907, as amended, Galgiani. Personal income taxes: gross income exclusion: mortgage debt forgiveness.
The Personal Income Tax Law provides for modified conformity to specified provisions of federal income tax law 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, 2014, as provided. The federal Tax Increase Prevention Act of 2014 extended the operation of those provisions to debt that is discharged before January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 extended the operation of those provisions to debt that is discharged before January 1, 2017, and provides that its discharge provisions apply to specified written agreements entered into before January 1, 2017.
This bill would conform to that additional discharge provision relating to specified written agreements and the federal extensions, some of which would be applied retroactively. The bill would discharge indebtedness for related penalties and interest and would make legislative findings and declarations regarding the public purpose served by the bill.
This bill would declare that it is to take effect immediately as an urgency statute.
Vote: 2⁄3. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 17144.5 of the Revenue and Taxation
2Code is amended to read:
(a) Section 108(a)(1)(E) of the Internal Revenue
4Code, is modified to provide that the amount excluded from gross
5income shall not exceed $500,000 ($250,000 in the case of a
6married individual filing a separate return).
7(b) Section 108(h)(2) of the Internal Revenue Code, relating to
8qualified principal residence indebtedness, is modified by
9substituting the phrase “(within the meaning of section
10163(h)(3)(B), applied by substituting ‘$800,000 ($400,000’ for
11‘$1,000,000 ($500,000’ in clause (ii) thereof)” for the phrase
12“(within the meaning of section 163(h)(3)(B), applied by
13substituting ‘$2,000,000 ($1,000,000’ for ‘$1,000,000 ($500,000’
14in
clause (ii) thereof)” contained therein.
15(c) This section shall apply to discharges of indebtedness
16occurring on or after January 1, 2007, and, notwithstanding any
17other law to the contrary, no penalties or interest shall be due with
18respect to the discharge of qualified principal residence
19indebtedness during the 2007, 2009, or 2013 taxable year regardless
20of whether or not the taxpayer reports the discharge on his or her
21return for the 2007, 2009, or 2013 taxable year.
22(d) (1) The amendments made by Section 102 of the federal
23Tax Increase Prevention Act of 2014 (Public Law 113-295) to
24Section 108 of the Internal Revenue Code, relating to income from
25discharge of indebtedness, shall apply.
26(2) The changes made to this section by the act adding this
27paragraph shall apply to discharges of indebtedness that occur on
28or after January 1, 2014, and before January 1, 2015, and,
29notwithstanding any other law, no penalties or interest shall be
P3 1due with respect to the discharge of qualified principal residence
2indebtedness during the 2014 taxable year, regardless of whether
3the taxpayer reports the discharge on his or her income tax return
4for the 2014 taxable year.
5(e) (1) The amendments made by Section 151 of the federal
6Protecting Americans from Tax Hikes Act of 2015 (Division Q of
7Public Law 114-113) to Section 108 of the Internal Revenue Code,
8relating to income from discharge of indebtedness, shall apply.
9(2) Notwithstanding any
other law, no penalties or interest shall
10be due with respect to the discharge of qualified principal residence
11indebtedness during the 2015 taxable year, regardless of whether
12the taxpayer reports the discharge on his or her income tax return
13for the 2015 taxable year.
(a) The amendments made by this act that conform
15to the amendments made by Section 102 of the federal Tax Increase
16Prevention Act of 2014 (Public Law 113-295) to Section 108 of
17the Internal Revenue Code, relating to income from discharge of
18indebtedness, apply to qualified principal residence indebtedness
19that is discharged on and after January 1, 2014, and before January
201, 2015.
21(b) The Legislature finds and declares that the amendments
22made by this act and the retroactive application contained in the
23preceding sentence are necessary for the public purpose of
24conforming state law to
the amendments to the Internal Revenue
25Code as made by the federal Tax Increase Prevention Act of 2014
26(Public Law 113-295), thereby preventing undue hardship to
27taxpayers whose qualified principal residence indebtedness was
28discharged on and after January 1, 2014, and before January 1,
292015, and do not constitute a gift of public funds within the
30meaning of Section 6 of Article XVI of the California Constitution.
(a) The amendments made by this act that conform
32to the amendments made by Section 151 of the federal Protecting
33Americans from Tax Hikes Act of 2015 (Division Q of Public Law
34114-113) to Section 108 of the Internal Revenue Code,
relating to
35income from discharge of indebtedness, apply to qualified principal
36residence indebtedness that is discharged on and after January 1,
372015, and before January 1, 2017, except forbegin delete anend deletebegin insert anyend insert discharge of
38qualified principal residence indebtedness that is subject to an
39arrangement that is entered into and evidenced in writing before
40January 1, 2017, in which case the amendments made by this act
P4 1begin delete toend deletebegin insert thatend insert conform to the amendments made by Section 151 of the
2Protecting Americans from Tax Hikes Act of 2015begin delete (Divisionsend delete
3begin insert
(Divisionend insert Q of Public Law 114-113) apply tobegin insert qualifiedend insert principal
4residence indebtedness that is discharged after January 1, 2017.
5(b) The Legislature finds and declares that the amendments
6made by this act and the retroactive application contained in the
7preceding sentence regarding debt discharged before January 1,
82016, are necessary for the public purpose of conforming state law
9to the amendments to the Internal Revenue Code as made by the
10federal Protecting Americans from Tax Hikes Act of 2015
11(Division Q of Public Law 114-113), thereby preventing undue
12hardship to taxpayers whose qualified principal residence
13indebtedness was discharged on and after January 1, 2015, and
14before January 1, 2016, and do not
constitute a gift of public funds
15within the meaning of Section 6 of Article XVI of the California
16Constitution.
This act is an urgency statute necessary for the
18immediate preservation of the public peace, health, or safety within
19the meaning of Article IV of the Constitution and shall go into
20immediate effect. The facts constituting the necessity are:
21In order to provide tax relief to distressed homeowners at the
22earliest possible time, it is necessary that this act take effect
23immediately.
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