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SB-601 Personal income taxes: exclusions: capital gains: sale of residence.(2021-2022)



Current Version: 05/20/21 - Amended Senate

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SB601:v97#DOCUMENT

Amended  IN  Senate  May 20, 2021
Amended  IN  Senate  April 22, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 601

Introduced by Senator Ochoa Bogh
(Coauthor: Senator Archuleta)
(Coauthors: Assembly Members Choi, Lackey, Mathis, and Smith)

February 18, 2021

An act to amend Section 17152 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 601, as amended, Ochoa Bogh. Personal income taxes: exclusions: capital gains: sale of residence.
The Personal Income Tax Law provides, in modified conformity to federal income tax laws, for the manner in which taxable gains are to be recognized upon the disposition of property, including real property that is the principal residence of the taxpayer. Existing law allows an individual to exclude from their gross income up to $250,000 or $500,000, as specified, of gain realized on the sale or exchange of their residence if the taxpayer owned and occupied the residence as a principal residence for an aggregate period of at least 2 of the 5 years prior to the sale or exchange.
This bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would revise the exclusion to provide that if the buyer of a qualified principal residence, as defined, is a qualified first-time homeowner, as defined, the amount of the exclusion is increased to $300,000 or $600,000, as specified. The bill would limit the increased exclusion amount to transactions in which, on or before the closing date of the sale or exchange of the qualified principal residence, the seller obtains a certification from the buyer in writing, signed under penalty of perjury, that the buyer is a qualified first-time homeowner and including specified information concerning the sale of the qualified principal residence. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program. The bill would additionally provide that these provisions are only operative for taxable years for which resources are authorized in the annual Budget Act or other statute for specified purposes.
Existing law requires that any bill introduced on or after January 1, 2020, that would authorize certain tax expenditures, as defined, or tax exemptions contain, among other things, specific goals, purposes, and objectives that the tax expenditure or exemption will achieve, detailed performance indicators, and data collection requirements.
This bill would provide findings and declarations relating to the goals of the expansion of the exclusion from gross income for sales of a qualified principal residence to a first-time homeowner.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

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


SECTION 1.

 Section 17152 of the Revenue and Taxation Code is amended to read:

17152.
 Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, is modified as follows:
(a) The two-year period in Section 121(a) of the Internal Revenue Code shall be reduced by the period of the taxpayer’s service, not to exceed 18 months, in the Peace Corps during the five-year period ending on the date of the sale or exchange.
(b) If the taxpayer is prohibited from filing a joint return pursuant to Section 18521, Section 121(b)(2)(A) of the Internal Revenue Code shall nevertheless be treated as being satisfied if the taxpayer files a joint return for federal income tax purposes for the same taxable year. However, except as provided in subdivision (g), in no instance shall the total amount excludable from gross income under Section 121(a) of the Internal Revenue Code with respect to any sale or exchange exceed the maximum amount allowed by Section 121(b) of the Internal Revenue Code.
(c) (1) If a taxpayer has, at any time, made an election for federal purposes under Section 121(f) of the Internal Revenue Code not to have Section 121 of the Internal Revenue Code apply to a sale or exchange, Section 121 of the Internal Revenue Code shall not apply to that sale or exchange for state purposes, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, the federal election shall be binding for purposes of this part, and that election shall be treated as an election to include in gross income for purposes of this part all the gain from the sale or exchange of that property, including that amount which, but for that election, would have been excluded from income under Section 121(a) of the Internal Revenue Code for state purposes.
(2) If a taxpayer fails to make an election for federal purposes under Section 121(f) of the Internal Revenue Code to not have Section 121 of the Internal Revenue Code apply to a sale or exchange, no election under Section 121(f) of the Internal Revenue Code shall be allowed for state purposes, Section 121 of the Internal Revenue Code shall apply to that sale or exchange for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5.
(d) (1) If a taxpayer has, at any time, made an election for federal purposes under Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or Section 312(d)(4) of that act, relating to binding contracts, to not have the amendments made by Section 312 of the Taxpayer Relief Act of 1997 (Public Law 105-34) apply to a sale or exchange, the amendments made by the act adding this subdivision shall not apply to that sale or exchange, Sections 1, 4, and 6 of Chapter 610 of the Statutes of 1997 shall not apply to that sale or exchange, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, and the federal election shall be binding for purposes of this part.
(2) If a taxpayer fails to make an election for federal purposes under Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or Section 312(d)(4) of that act, relating to binding contracts, to not have the amendments made by Section 312 of the Taxpayer Relief Act of 1997 (Public Law 105-34) apply to a sale or exchange, an election under Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or Section 312(d)(4) of that act, relating to binding contracts, shall not be allowed for state purposes, the amendments made by the act adding this subdivision shall apply to that sale or exchange, Sections 1, 4, and 6 of Chapter 610 of the Statutes of 1997 shall apply to that sale or exchange, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5.
(e) (1) If a taxpayer has, at any time, made or revoked an election for federal purposes under Section 121(d)(9) of the Internal Revenue Code to suspend the running of the five-year period described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the Internal Revenue Code, that election or revocation of election to suspend the five-year period under Section 121(d)(9) of the Internal Revenue Code shall be applicable for state purposes, a separate election or revocation of election for purposes of Section 121(d)(9) of the Internal Revenue Code may not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, and the federal election or revocation of election shall be binding for purposes of this part.
(2) If a taxpayer fails to make an election for federal purposes under Section 121(d)(9) of the Internal Revenue Code to suspend the running of the five-year period described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the Internal Revenue Code, that five-year period may not be suspended under Section 121(d)(9) of the Internal Revenue Code for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5.
(f) Section 121(d)(11) of the Internal Revenue Code, relating to property acquired from a decedent, shall not apply.
(g) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, for purposes of this subdivision, if a buyer of a qualified principal residence located in California is a qualified first-time homeowner, then, for purposes of determining the amount of excludable gain by the seller on the sale of a qualified principal residence, Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, is modified as follows:
(1) Section 121(b)(1) of the Internal Revenue Code, relating to limitations in general, is modified by substituting “$300,000” in lieu of “$250,000.”
(2) Section 121(b)(2)(A) of the Internal Revenue Code, relating to $500,000 limitation for certain joint returns, is modified by substituting “$600,000” in lieu of “$500,000.”
(3) Section 121(b)(4) of the Internal Revenue Code, relating to special rule for certain sales by surviving spouses, is modified by substituting “$600,000” in lieu of “$500,000.”
(4) For purposes of this subdivision, “qualified first-time homeowner” means any individual and, if married, that individual’s spouse who had no ownership interest in a principal residence during the preceding three-year period ending on the closing date of the purchase of the qualified principal residence. For purposes of the preceding sentence, a “qualified first-time homeowner” does not include any individual, their spouse, or both, if the individual and their spouse are treated as a “related party” to the seller under Section 267, 318, or 707 of the Internal Revenue Code, relating to losses, expenses, and interest with respect to transactions between related taxpayers, constructive ownership of stock, and transactions between partner and partnership.
(5) For purposes of this subdivision, “qualified principal residence” means a single-family residence, whether detached or attached, that is purchased to be the principal residence of a qualified first-time homeowner for a minimum of two years and is eligible for the homeowner’s exemption under Section 218.
(6) (A) This subdivision shall only apply if, on or before the closing date of the sale or exchange of the qualified principal residence, the seller obtains a certification from the buyer in writing, signed under penalty of perjury, that the buyer is a qualified first-time homeowner within the meaning of this subdivision.
(B) The certification required under subparagraph (A) shall include the following information, in the form and manner as may be prescribed by the Franchise Tax Board:
(i) The buyer’s name, taxpayer identification number, and address.
(ii) The seller’s name, taxpayer identification number, and address.
(iii) The address and sales price of the qualified principal residence.
(iv) An affirmative representation by the buyer which verifies that the buyer meets the requirements of paragraph (4), including a representation that the buyer has not owned a qualified principal residence during the three-year period ending on the closing date of the purchase of the qualified principal residence.
(7) This subdivision shall only be operative for taxable years for which resources are authorized in the annual Budget Act or other statute for the Franchise Tax Board to oversee and audit returns associated with the exclusion of gain from the sale of a principal residence to a qualified first-time homeowner.
(h) The amendments made by Section 417 of the Tax Relief and Health Care Act of 2006 (Public Law 109-432) to Section 121(d)(9) of the Internal Revenue Code, relating to uniformed services, foreign service, and intelligence community, shall apply to sales or exchanges that occur on or after January 1, 2010.
(i) The amendments made by subdivision (a) of Section 7 of the Mortgage Forgiveness Debt Relief Act of 2007 (Public Law 110-142) to Section 121 of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, shall apply to sales or exchanges that occur on or after January 1, 2010.

SEC. 2.

 (a) For purposes of satisfying the requirements of Section 41 of the Revenue and Taxation Code, the Legislature finds that the goals, purposes, and objectives of the increased exclusion from gross income provided by Section 1 of this act are as follows:
(1) To help level the playing field for first-time homebuyers.
(2) To get more first-time homebuyers into homes.
(b) The performance indicators for the Legislature to use in determining whether the increased exclusion meets those goals, purposes, and objectives shall be the number of taxpayers utilizing the increased exclusion.
(c) The Legislative Analyst shall collaborate with the Franchise Tax Board to review the effectiveness of the increased exclusion and shall publish its findings by December 1, ____. The review shall include, but is not limited to, an analysis of the demand for the increased exclusion and the economic impact of the increased exclusion.
(d) The data collection requirements for determining whether the increased exclusion is meeting, failing to meet, or exceeding the specific goals, purposes, and objectives are as follows:
(1) Notwithstanding Section 19542 of the Revenue and Taxation Code, the Legislative Analyst may request, and the Franchise Tax Board may provide, any information necessary in carrying out the duties of the Legislative Analyst’s Office under subdivision (c).
(2) Any information received by the Legislative Analyst’s Office pursuant to this subdivision, that has not otherwise been made public, shall be considered confidential taxpayer information subject to Section 19542 of the Revenue and Taxation Code.

SEC. 3.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SEC. 4.

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