SJR-20 Assembly Revenue and Tax Analysis

SJR 20
Page 1
Date of Hearing: June 28, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony Portantino, Chair
SJR 20 (Alquist) – As Amended: May 5, 2010
Majority vote.
SENATE VOTE: 32-0
SUBJECT: Taxation: sale of principal residence.
SUMMARY: Urges the Congress and the President of the United States (U.S.) to enact
legislation that would increase the amount of capital gain excludable from income if it is realized
by a senior citizen 65 years of age or older on the sale of his/her principal residence.
Specifically, this bill:
1) Makes a request from the Legislature to Congress and the President of the U.S. to enact
legislation that would do all of the following:
a) Increase the amount of non-taxable gain realized on the sale of the qualifying principal
residence by a senior citizen 65 years of age or older from $250,000 to $500,000 for
single filers and from $500,000 to $750,000 for joint filers.
b) Limit the seniors’ eligibility for the increased amount of non-taxable gain only to seniors
who pay for long-term care costs, including long term care insurance premiums, entrance
fees to assisted living facilities, continuing care retirement communities, and senior
congregate living facilities.
2) Makes findings to support the request and resolves that the Secretary of the Senate transmit
copies of the resolution to specified elected officials.
EXISTING LAW:
1) Allows an individual taxpayer to exclude up to $250,000 ($500,000 if married filing a joint
return) of gain realized on the sale or exchange of a principal residence. To be eligible for
the exclusion, the taxpayer must have owned and used the residence as his/her principal
residence for at least two of the five years ending on the sale or exchange. A taxpayer who
fails to meet these requirements by reason of a change of place of employment, health, or
unforeseen circumstances, to the extent provided under regulations, is able to exclude an
amount equal to the fraction of the $250,000 ($500,000 if married filing a joint return).
2) Limits the exclusion to account for periods of “nonqualified use,” e.g. when the property is
rented out or otherwise does not qualify as a principal residence, for sales occurring after
December 31, 2008.
3) Provides that, for sales after January 1, 2009, if a married couple is otherwise eligible for the
$500,000 maximum exclusion with respect to a principal residence immediately prior to the
SJR 20
Page 2
death of one of the spouses, then the unmarried surviving spouse is eligible for a maximum
exclusion of $500,000 on the sale of the residence if such sale occurs not later than two years
after the date of death of such spouse. [The Mortgage Forgiveness Debt Relief Act of 2007,
Public Law 110-142 (MFDRA)].
FISCAL EFFECT: None
COMMENTS:
1) Author’s Statement. The author states that, “SJR 20 would urge Congress and the President
to enact legislation to increase the amount of gain a senior citizen, who is 65 years of age or
older and who pays for long-term care costs, is allowed to exclude from income, from
$250,000 to $500,000, and from $500,000 to $750,000 for joint returns, from the sale of the
qualifying principal residence of the senior citizen.
“Such an increase in the amount a senior citizen could exclude from taxation as a capital gain
would help seniors plan for their long-term care, whether by assisting seniors to buy into an
assisted living facility or continuing care retirement community, or by purchasing long-term
care insurance, or by paying for long-term care services along the continuum of care as they
age.
“In sum, SJR 20 would incentivize seniors to do the right thing, and plan for their future,
long-term health care needs, rather than to stick their heads in the sand and to stay in a home
that is too expensive for them to care for and too big for them to manage.”
2) Background. Under existing California law, an individual taxpayer may exclude up to
$250,000 of gain realized on the sale or exchange of a principal residence. To be eligible for
the exclusion, the taxpayer must have owned and used the residence as his/her principal
residence for at least two of the five years ending on the sale or exchange. A husband and a
wife who file a joint return for the taxable year in which they sell their principal residence
may exclude up to $500,000 of gain, provided that at least one of the spouses owned it and
both spouses have used the property as their principal residence for the required period of
time. The Department of Finance (DOF) estimates that this tax benefit results in more than
$3.7 billion in foregone revenue in 2009-10.
In addition, homeowners may deduct interest payments of up to $500,000 ($1 million in the
case of joint returns) of indebtedness used to purchase a first and second home, and up to
$100,000 in home improvement loans. The DOF estimates that this tax benefit results in
more than $5.4 billion in foregone revenue in 2009-10. Finally, taxpayers who purchase a
house in 2009 may be entitled to both the federal and state home purchase tax credits.
3) Tax Relief for Registered Domestic Partners. The federal law does not recognize same-sex
couples who are married under state law. Thus, under federal law, registered domestic
partners will not benefit from the tax relief granted to surviving spouses pursuant to Internal
Revenue Code Section 121. However, existing California law treats a domestic registered
partner as a spouse for purposes of the Personal Income Tax Law. The term “domestic
partner” means an individual partner in a domestic partner relationship within the meaning of
Family Code Section 297.
SJR 20
Page 3
4) What Does this Bill Do? As discussed, existing federal and state tax laws already provide
generous benefits to individuals seeking to purchase homes to build better communities. In a
perfect world, few would argue that seniors should face a large tax bill when selling a home,
especially when they must pay large, up-front fees when moving from their home into a
senior community. SJR 20 asks the federal government to eliminate from capital gains the
proceeds of a sale of a principal residence above the threshold of the existing exclusion,
which would solely benefit those taxpayers who receive more than $250,000 or $500,000
from the sale of a principal residence. However, as such, the only beneficiaries of Congress
acting on SJR 20’s request would be those seniors with relatively valuable homes. While this
bill asks Congress to increase the exclusion amount only for taxpayers who incur long-term
health care costs, it does not limit the eligibility to those seniors who otherwise are not able
to afford the long term care. The Committee may wish to consider amending this measure to
address this issue.
REGISTERED SUPPORT / OPPOSITION:
Support
California Senior Legislature
Opposition
None on file
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098

SJR 20Page 1Date of Hearing: June 28, 2010ASSEMBLY COMMITTEE ON REVENUE AND TAXATIONAnthony Portantino, ChairSJR 20 (Alquist) – As Amended: May 5, 2010Majority vote.SENATE VOTE: 32-0SUBJECT: Taxation: sale of principal residence.SUMMARY: Urges the Congress and the President of the United States (U.S.) to enactlegislation that would increase the amount of capital gain excludable from income if it is realizedby a senior citizen 65 years of age or older on the sale of his/her principal residence.Specifically, this bill:1) Makes a request from the Legislature to Congress and the President of the U.S. to enactlegislation that would do all of the following:a) Increase the amount of non-taxable gain realized on the sale of the qualifying principalresidence by a senior citizen 65 years of age or older from $250,000 to $500,000 forsingle filers and from $500,000 to $750,000 for joint filers.b) Limit the seniors’ eligibility for the increased amount of non-taxable gain only to seniorswho pay for long-term care costs, including long term care insurance premiums, entrancefees to assisted living facilities, continuing care retirement communities, and seniorcongregate living facilities.2) Makes findings to support the request and resolves that the Secretary of the Senate transmitcopies of the resolution to specified elected officials.EXISTING LAW:1) Allows an individual taxpayer to exclude up to $250,000 ($500,000 if married filing a jointreturn) of gain realized on the sale or exchange of a principal residence. To be eligible forthe exclusion, the taxpayer must have owned and used the residence as his/her principalresidence for at least two of the five years ending on the sale or exchange. A taxpayer whofails to meet these requirements by reason of a change of place of employment, health, orunforeseen circumstances, to the extent provided under regulations, is able to exclude anamount equal to the fraction of the $250,000 ($500,000 if married filing a joint return).2) Limits the exclusion to account for periods of “nonqualified use,” e.g. when the property isrented out or otherwise does not qualify as a principal residence, for sales occurring afterDecember 31, 2008.3) Provides that, for sales after January 1, 2009, if a married couple is otherwise eligible for the$500,000 maximum exclusion with respect to a principal residence immediately prior to theSJR 20Page 2death of one of the spouses, then the unmarried surviving spouse is eligible for a maximumexclusion of $500,000 on the sale of the residence if such sale occurs not later than two yearsafter the date of death of such spouse. [The Mortgage Forgiveness Debt Relief Act of 2007,Public Law 110-142 (MFDRA)].FISCAL EFFECT: NoneCOMMENTS:1) Author’s Statement. The author states that, “SJR 20 would urge Congress and the Presidentto enact legislation to increase the amount of gain a senior citizen, who is 65 years of age orolder and who pays for long-term care costs, is allowed to exclude from income, from$250,000 to $500,000, and from $500,000 to $750,000 for joint returns, from the sale of thequalifying principal residence of the senior citizen.”Such an increase in the amount a senior citizen could exclude from taxation as a capital gainwould help seniors plan for their long-term care, whether by assisting seniors to buy into anassisted living facility or continuing care retirement community, or by purchasing long-termcare insurance, or by paying for long-term care services along the continuum of care as theyage.”In sum, SJR 20 would incentivize seniors to do the right thing, and plan for their future,long-term health care needs, rather than to stick their heads in the sand and to stay in a homethat is too expensive for them to care for and too big for them to manage.”2) Background. Under existing California law, an individual taxpayer may exclude up to$250,000 of gain realized on the sale or exchange of a principal residence. To be eligible forthe exclusion, the taxpayer must have owned and used the residence as his/her principalresidence for at least two of the five years ending on the sale or exchange. A husband and awife who file a joint return for the taxable year in which they sell their principal residencemay exclude up to $500,000 of gain, provided that at least one of the spouses owned it andboth spouses have used the property as their principal residence for the required period oftime. The Department of Finance (DOF) estimates that this tax benefit results in more than$3.7 billion in foregone revenue in 2009-10.In addition, homeowners may deduct interest payments of up to $500,000 ($1 million in thecase of joint returns) of indebtedness used to purchase a first and second home, and up to$100,000 in home improvement loans. The DOF estimates that this tax benefit results inmore than $5.4 billion in foregone revenue in 2009-10. Finally, taxpayers who purchase ahouse in 2009 may be entitled to both the federal and state home purchase tax credits.3) Tax Relief for Registered Domestic Partners. The federal law does not recognize same-sexcouples who are married under state law. Thus, under federal law, registered domesticpartners will not benefit from the tax relief granted to surviving spouses pursuant to InternalRevenue Code Section 121. However, existing California law treats a domestic registeredpartner as a spouse for purposes of the Personal Income Tax Law. The term “domesticpartner” means an individual partner in a domestic partner relationship within the meaning ofFamily Code Section 297.SJR 20Page 34) What Does this Bill Do? As discussed, existing federal and state tax laws already providegenerous benefits to individuals seeking to purchase homes to build better communities. In aperfect world, few would argue that seniors should face a large tax bill when selling a home,especially when they must pay large, up-front fees when moving from their home into asenior community. SJR 20 asks the federal government to eliminate from capital gains theproceeds of a sale of a principal residence above the threshold of the existing exclusion,which would solely benefit those taxpayers who receive more than $250,000 or $500,000from the sale of a principal residence. However, as such, the only beneficiaries of Congressacting on SJR 20’s request would be those seniors with relatively valuable homes. While thisbill asks Congress to increase the exclusion amount only for taxpayers who incur long-termhealth care costs, it does not limit the eligibility to those seniors who otherwise are not ableto afford the long term care. The Committee may wish to consider amending this measure toaddress this issue.REGISTERED SUPPORT / OPPOSITION:SupportCalifornia Senior LegislatureOppositionNone on fileAnalysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098

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