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AB-1771 The California Housing Speculation Act: income taxes: capital gains: sale or exchange of qualified asset: housing.(2021-2022)

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Date Published: 03/22/2022 09:00 PM
AB1771:v97#DOCUMENT

Amended  IN  Assembly  March 22, 2022
Amended  IN  Assembly  March 07, 2022

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 1771

Introduced by Assembly Member Ward
(Coauthor: Assembly Member Mullin)

February 02, 2022

An act to amend Sections 19602 and 19604 of, to add Article 1 (commencing with Section 18200) to Chapter 14 of Part 10 of Division 2 of, to add Article 1.5 (commencing with Section 19609) to Chapter 8 of Part 10.2 of Division 2 of, and to add Article 6 (commencing with Section 25000) to Chapter 15 of Part 11 of Division 2 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 1771, as amended, Ward. The California Housing Speculation Act: income taxes: capital gains: sale or exchange of qualified asset: housing.
The Personal Income Tax Law and Corporation Tax Law impose taxes upon income, including income generated from any gain from the sale or exchange of a capital asset.
This bill would, for taxable years beginning on or after January 1, 2023, impose an additional 25% tax on that portion of a qualified taxpayer’s net capital gain from the sale or exchange of a qualified asset, as defined. The bill would reduce those taxes depending on how many years has passed since the qualified taxpayer’s initial purchase of the qualified asset. The bill would create the Speculation Recapture Community Reinvestment Fund and would deposit the revenues received as a result of this increase in tax in the fund. The bill would require the Franchise Tax Board, upon appropriation by the Legislature, to allocate moneys in the fund, as described.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 This act shall be known, and may be cited, as The California Housing Speculation Act.

SEC. 2.

 The Legislature finds and declares all of the following:
(a) According to the California Association of Realtors’ quarterly index, California’s median price for a single-family home increased 17 percent to $814,580 in the third quarter of 2021 while near-record lows of 42 percent of Californians could meet home-buying qualification standards. Further, prices of condominiums and townhomes are at an all-time high, reaching an average of $620,000 in November 2021 or 19.2 percent over 12 months.
(b) During the same period, market analysis estimates that investor-buyers represented approximately 51 percent growth of sales year over year from 2020 to 2021 of sales in southern California alone, compared to a national average of 18 percent.
(c) The share of total sales of investor-buyers has increased significantly in recent years in the state and across the nation. Investor-buyer interest is not limited to recent years. Increased interest was present in 2006 to 2008, ahead of the market collapse, which decimated home equity and public revenue, and during other periods in market cycles over recent decades.
(d) Individual homebuyers find it increasingly difficult to obtain a home because cash-rich investor-buyers have added additional demand for housing, even as supply has remained the same, causing home prices to skyrocket. Additionally, direct competition from investor-buyers, often presenting cash-only offers or higher offers, is further shutting out opportunity for middle- and lower-income Californians to buy a home.
(e) The Legislature has enacted housing policies to increase the supply of housing and extend affordability. The Legislature has further prioritized subsidies to produce more affordable housing. Increasing the supply of housing is certainly extremely important, but may fall short of the total scale of solutions needed to address both the decades-long deficit in housing supply needed, and the continuing increases in housing prices.
(f) Short-term speculative transactions, allowed unchecked, contribute significantly to higher housing costs for all and has negative social and economic consequences. A reasonable control mechanism should be enacted to discourage real estate as a short-term equity gain mechanism by capturing excessive property value increases, thereby increasing the risk to investors and redirecting their interest from investing in real estate to investments in other assets. Funds generated through this equity recapture should be directed to local governments, schools, and affordable housing purposes for general benefit to offset the negative consequences of short-term speculation.

SEC. 3.

 Article 1 (commencing with Section 18200) is added to Chapter 14 of Part 10 of Division 2 of the Revenue and Taxation Code, to read:
Article  1. Capital Gains Tax for Housing

18200.
 (a) (1) For each taxable year beginning on or after January 1, 2023, in addition to any other tax imposed by this part, an additional tax shall be imposed at the rate of 25 percent, and as modified pursuant to paragraph (2), on that portion of a qualified taxpayer’s net capital gain generated as a result of the sale or exchange of a qualified asset.
(2) The 25-percent tax described in paragraph (1) shall be reduced as follows:
(A) The tax shall be reduced by 20 percent if the sale or exchange of the qualified asset occurred 3.01 to 4 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(B) The tax shall be reduced by 40 percent if the sale or exchange of the qualified asset occurred 4.01 to 5 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(C) The tax shall be reduced by 60 percent if the sale or exchange of the qualified asset occurred 5.01 to 6 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(D) The tax shall be reduced by 80 percent if the sale or exchange of the qualified asset occurred 6.01 to 7 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(E) The tax shall be reduced by 100 percent if the sale or exchange of the qualified asset occurred more than seven years after the qualified taxpayer’s initial purchase of the qualified asset.
(3) For purposes of applying Part 10.2 (commencing with Section 18401), the tax imposed under this section shall be treated as if imposed under Section 17041.
(b) For purposes of this section:
(1) “Qualified asset” means any real property other than any of the following:
(A) (i) Real property that meets all of the following requirements:
(I) The real property is composed of multiple units.
(II) The real property is restricted, by deed, to require that at least 15 percent of residential units on the property are affordable housing.
(III) The deed restriction described in subclause (II) was recorded against the property within three years of the sale or exchange of the property.
(ii) The exemption for the real property described in clause (i) only applies to the first sale or exchange of that property by any person.
(B) Real property that is part of subdivided or lot split property for which the qualified taxpayer is also the recorded owner, if the other portions of the subdivided or lot split property have not been sold.
(C) Any real property that is designated or dedicated open space.
(D) Any real property that is not suitable for residential use or not permitted for residential or mixed-development with residential use under local or state law.
(E) Any real property for which any property transfer taxes do not apply.
(F) Real property that is restricted, by deed, to require that the property remain affordable.
(G) Any residential real property that meets both of the following requirements:
(i) The property is the first residential real property that the qualified taxpayer has owned.
(ii) The qualified taxpayer has used the property as their primary residence since their initial purchase of the property.
(H) Any residential real property occupied by the qualified taxpayer as their principal place of residence and that is eligible for a homeowners’ property tax exemption pursuant to subdivision (k) of Section 3 of Article XIII of the California Constitution and Section 218.
(2) “Qualified taxpayer” shall not include either of the following:
(A) Any active duty military personnel.
(B) A decedent.
(c) All moneys and remittances received by the Franchise Tax Board as amounts imposed under this section, and related penalties, additions to tax, and interest imposed under this part, shall be deposited, after clearance of remittances, in the Speculation Recapture Community Reinvestment Fund.

SEC. 4.

 Section 19602 of the Revenue and Taxation Code is amended to read:

19602.
 Except for amounts collected or accrued under Sections 17935, 17941, 17948, 19532, and 19561, and revenues deposited pursuant to Sections 18200 and 19602.5, all moneys and remittances received by the Franchise Tax Board as amounts imposed under Part 10 (commencing with Section 17001), and related penalties, additions to tax, and interest imposed under this part, shall be deposited, after clearance of remittances, in the State Treasury and credited to the Personal Income Tax Fund.

SEC. 5.

 Section 19604 of the Revenue and Taxation Code is amended to read:

19604.
 (a) Except for fees received for services under Section 23305e, and revenues deposited pursuant to Section 25000, all moneys and remittances received by the Franchise Tax Board as amounts imposed under Part 11 (commencing with Section 23001), and related penalties, additions to tax, fees, and interest imposed under this part, shall be deposited in a special fund in the State Treasury, to be designated the Corporation Tax Fund. The moneys in the fund shall, upon the order of the Controller, be drawn therefrom for the purpose of making refunds under this part or be transferred into the General Fund. All undelivered refund warrants shall be redeposited into the Corporation Tax Fund upon receipt by the Controller. Fees received for services under Section 23305e shall be treated as reimbursement of the Franchise Tax Board’s costs and shall be deposited into the General Fund.
(b) Notwithstanding Section 13340 of the Government Code, all moneys in the Corporation Tax Fund are hereby continuously appropriated, without regard to fiscal year, to the Franchise Tax Board for purposes of making all payments as provided in this section.

SEC. 6.

 Article 1.5 (commencing with Section 19609) is added to Chapter 8 of Part 10.2 of Division 2 of the Revenue and Taxation Code, to read:
Article  1.5. Speculation Recapture Community Reinvestment Fund

19609.
 (a) There is hereby created in the State Treasury the Speculation Recapture Community Reinvestment Fund for the purpose of allocating moneys deposited pursuant to Article 1 (commencing with Section 18200) of Chapter 14 of Part 10 and Article 6 (commencing with Section 25000) of Chapter 15 of Part 11.
(b) Upon appropriation by the Legislature, the Franchise Tax Board shall allocate moneys in the fund as follows:
(1) At least 30 percent shall be allocated to counties to be used to create affordable housing in the county.
(2) Twenty percent shall be allocated to school districts to be used for general purposes.
(3) Forty percent shall be allocated to cities, or counties if the qualified asset is located in an unincorporated area, to be used for general infrastructure, transit or active transportation projects, or community facilities.
(4) Up to 10 percent shall be allocated to the Franchise Tax Board to administer this article. Any remaining moneys under this paragraph shall be allocated to counties, as specified in paragraph (1).
(c) Allocations to counties, cities, and school districts under subdivision (b) shall be made in proportion to the percentage of moneys in the fund that are associated with the sale of the qualified asset within the jurisdiction of the county, city, or school district, as applicable.

SEC. 7.

 Article 6 (commencing with Section 25000) is added to Chapter 15 of Part 11 of Division 2 of the Revenue and Taxation Code, to read:
Article  6. Capital Gains Tax for Housing

25000.
 (a) (1) For each taxable year beginning on or after January 1, 2023, in addition to any other tax imposed by this part, an additional tax shall be imposed at the rate of 25 percent, and as modified pursuant to paragraph (2), on that portion of a qualified taxpayer’s net capital gain generated as a result of the sale or exchange of a qualified asset.
(2) The 25-percent tax described in paragraph (1) shall be reduced as follows:
(A) The tax shall be reduced by 20 percent if the sale or exchange of the qualified asset occurred 3.01 to 4 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(B) The tax shall be reduced by 40 percent if the sale or exchange of the qualified asset occurred 4.01 to 5 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(C) The tax shall be reduced by 60 percent if the sale or exchange of the qualified asset occurred 5.01 to 6 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(D) The tax shall be reduced by 80 percent if the sale or exchange of the qualified asset occurred 6.01 to 7 years, inclusive, after the qualified taxpayer’s initial purchase of the qualified asset.
(E) The tax shall be reduced by 100 percent if the sale or exchange of the qualified asset occurred more than seven years after the qualified taxpayer’s initial purchase of the qualified asset.
(3) For purposes of applying Part 10.2 (commencing with Section 18401), the tax imposed under this section shall be treated as if imposed under Section 23151.
(b) For purposes of this section:
(1) “Qualified asset” means any real property other than any of the following:
(A) (i) Real property that meets all of the following requirements:
(I) The real property is composed of multiple units.
(II) The real property is restricted, by deed, to require that at least 15 percent of residential units on the property are affordable housing.
(III) The deed restriction described in subclause (II) was recorded against the property within three years of the sale or exchange of the property.
(ii) The exemption for the real property described in clause (i) only applies to the first sale or exchange of that property by any person.
(B) Real property that is part of subdivided or lot split property for which the qualified taxpayer is also the recorded owner, if the other portions of the subdivided or lot split property have not been sold.
(C) Any real property that is designated or dedicated open space.
(D) Any real property that is not suitable for residential use or not permitted for residential or mixed-development with residential use under local or state law.
(E) Any real property for which any property transfer taxes do not apply.
(F) Real property that is restricted, by deed, to require that the property remain affordable.
(2) “Qualified taxpayer” shall not include active duty military personnel.
(c) All moneys and remittances received by the Franchise Tax Board as amounts imposed under this section, and related penalties, additions to tax, and interest imposed under this part, shall be deposited, after clearance of remittances, in the Speculation Recapture Community Reinvestment Fund.

SEC. 8.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.