SJR-20 Senate Revenue and Tax Analysis

CONTINUED
SENATE RULES COMMITTEE
Office of Senate Floor Analyses
1020 N Street, Suite 524
(916) 651-1520 Fax: (916) 327-4478
SJR 20
CONSENT
Bill No: SJR 20
Author: Alquist (D)
Amended: 5/5/10
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE: 4-0, 5/12/10
AYES: Wolk, Alquist, Ashburn, Padilla
NO VOTE RECORDED: Walters
SUBJECT: Taxation: sale of principal residence: senior citizens
SOURCE: California Senior Legislature
DIGEST: This resolution urges the Congress and the President of the
United States to enact legislation that increases the amount of gain that a
senior citizen 65 years of age and older and who pays for long-term care
costs I 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.
ANALYSIS: Existing federal and state law allows taxpayers to exclude up
to $250,000 single/$500,000 joint in income resulting from the sale of their
principal residence. Additionally, taxpayers may adjust the basis of
inherited property upward to fair market value at the time of the decedent’s
death. Therefore, any appreciation in the property’s value that occurred
prior to the decedent’s death is exempted from capital gains taxation.
A senior citizen who is 65 years of age or older is equally subject to capital
gains taxes on the sale of his/her principal residence even if he/she will be
moving into a unit within an assisted living facility, continuing care
retirement community, or similar, where there may be heavy upfront fees.
SJR 20
Page 2
CONTINUED
FISCAL EFFECT: Fiscal Com.: No
SUPPORT: (Verified 5/17/10)
California Senior Legislature (source)
OPPOSITION: (Verified 5/17/10)
California Tax Reform Association
ARGUMENTS IN SUPPORT: According to the author’s office most
seniors do not sell their principal residence to move into another comparable
home. Rather, seniors often sell in order to downsize into a senior apartment
because they can no longer financially and physically care for their larger
home. They also use the equity to pay for long-term health care costs, like
long-term care insurance, home and community based services, or
institutionalized care. For the many seniors who have lived a lifetime in the
same home, or whose home value has skyrocketed in recent decades, the
current exclusion amounts of $250,000/$500,000 are too small. These
insufficient exclusion amounts create a disincentive for seniors to sell their
homes as they try to financially prepare for their long-term health care
needs. This resolution urges Congress and the President of the United States
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. The author’s office states, such an increase in the
amount a senior could exclude from taxation as a capital gain 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. In short, this resolution enables seniors to become better equipped
to plan for their long-term care needs as they grow older.
ARGUMENTS IN OPPOSITION: The California Tax Reform
Association opposes this resolution, they write, “As your resolution points
out, taxpayers are already allowed to exclude from income, up to $250,000
or $500,000 for joint returns, of gain from the sale of a qualifying principal
residence. Most seniors in California have already benefited, for many
years, from the state and federal mortgage interest deduction and Prop. 13’s
SJR 20
Page 3
cap on property taxes. Furthermore, these taxpayers are likely to have
already accrued significant equity in their home on a tax free basis, can roll
over any equity into another house, and, as noted, already are free from a
very large portion of capital gains. We do not see a justification for
providing this class of taxpayers with additional tax relief, especially given
the large federal budget deficits.”
DLW:do 5/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****

CONTINUEDSENATE RULES COMMITTEEOffice of Senate Floor Analyses1020 N Street, Suite 524(916) 651-1520 Fax: (916) 327-4478SJR 20CONSENTBill No: SJR 20Author: Alquist (D)Amended: 5/5/10Vote: 21SENATE REVENUE & TAXATION COMMITTEE: 4-0, 5/12/10AYES: Wolk, Alquist, Ashburn, PadillaNO VOTE RECORDED: WaltersSUBJECT: Taxation: sale of principal residence: senior citizensSOURCE: California Senior LegislatureDIGEST: This resolution urges the Congress and the President of theUnited States to enact legislation that increases the amount of gain that asenior citizen 65 years of age and older and who pays for long-term carecosts I allowed to exclude from income, from $250,000 to $500,000, andfrom $500,000 to $750,000 for joint returns, from the sale of the qualifyingprincipal residence of the senior citizen.ANALYSIS: Existing federal and state law allows taxpayers to exclude upto $250,000 single/$500,000 joint in income resulting from the sale of theirprincipal residence. Additionally, taxpayers may adjust the basis ofinherited property upward to fair market value at the time of the decedent’sdeath. Therefore, any appreciation in the property’s value that occurredprior to the decedent’s death is exempted from capital gains taxation.A senior citizen who is 65 years of age or older is equally subject to capitalgains taxes on the sale of his/her principal residence even if he/she will bemoving into a unit within an assisted living facility, continuing careretirement community, or similar, where there may be heavy upfront fees.SJR 20Page 2CONTINUEDFISCAL EFFECT: Fiscal Com.: NoSUPPORT: (Verified 5/17/10)California Senior Legislature (source)OPPOSITION: (Verified 5/17/10)California Tax Reform AssociationARGUMENTS IN SUPPORT: According to the author’s office mostseniors do not sell their principal residence to move into another comparablehome. Rather, seniors often sell in order to downsize into a senior apartmentbecause they can no longer financially and physically care for their largerhome. They also use the equity to pay for long-term health care costs, likelong-term care insurance, home and community based services, orinstitutionalized care. For the many seniors who have lived a lifetime in thesame home, or whose home value has skyrocketed in recent decades, thecurrent exclusion amounts of $250,000/$500,000 are too small. Theseinsufficient exclusion amounts create a disincentive for seniors to sell theirhomes as they try to financially prepare for their long-term health careneeds. This resolution urges Congress and the President of the United Statesto enact legislation to increase the amount of gain a senior citizen, who is 65years of age or older and who pays for long-term care costs, is allowed toexclude 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 residenceof the senior citizen. The author’s office states, such an increase in theamount a senior could exclude from taxation as a capital gain wouldincentivize seniors to do the right thing, and plan for their future, long-termhealth care needs, rather than to stick their heads in the sand and to stay in ahome that is too expensive for them to care for and too big for them tomanage. In short, this resolution enables seniors to become better equippedto plan for their long-term care needs as they grow older.ARGUMENTS IN OPPOSITION: The California Tax ReformAssociation opposes this resolution, they write, “As your resolution pointsout, taxpayers are already allowed to exclude from income, up to $250,000or $500,000 for joint returns, of gain from the sale of a qualifying principalresidence. Most seniors in California have already benefited, for manyyears, from the state and federal mortgage interest deduction and Prop. 13’sSJR 20Page 3cap on property taxes. Furthermore, these taxpayers are likely to havealready accrued significant equity in their home on a tax free basis, can rollover any equity into another house, and, as noted, already are free from avery large portion of capital gains. We do not see a justification forproviding this class of taxpayers with additional tax relief, especially giventhe large federal budget deficits.”DLW:do 5/17/10 Senate Floor AnalysesSUPPORT/OPPOSITION: SEE ABOVE**** END ****

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