Discussion:California Election out of Mortgage Relief Exclusion

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Discussion Forum Index --> Advanced Tax Questions --> California Election out of Mortgage Relief Exclusion


Discussion Forum Index --> Tax Questions --> California Election out of Mortgage Relief Exclusion

Riley2 (talk|edits) said:

27 February 2009
California RTC 17144.5 provides partial conformity to Internal Revenue Code § 108(a)(1)(E) relating to the Mortgage Forgiveness Debt Relief Act of 2007. However, the exclusion for California purposes is limited to $250,000.

I have a client who has acquisition debt cancellation in the amount of $350,000 and an insolvency amount of $300,000.

My thought was to exclude $350,000 under Internal Revenue Code § 108(a)(1)(E) for federal purposes, but exclude $300,000 under the insolvency exception for California purposes.

However, I am not sure that RTC 17044.5 would allow me to make a separate California election to use the insolvency exception.

Any thoughts?

KatieJ (talk|edits) said:

27 February 2009
Riley, we've always believed (and FTB staff has generally agreed) that unless an election provision specifically says no inconsistent election is allowed, CRTC Sec. 17024.5 (and 23051.5 on the corp side) allows it. For example, CRTC § 17279(a)(2) disallows an inconsistent election to amortize pre-1993 intangibles under IRC Sec. 197. But there is nothing similar in 17144.5. I don't see why you can't elect to use the insolvency exception for California but not federal purposes.

Riley2 (talk|edits) said:

28 February 2009
KatieJ, thank you for your input. This is helpful to the client since he would prefer not to use the insolvency exception on the federal return since it requires a basis reduction on 1/1/2010 to his remaining assets.

Avjayk (talk|edits) said:

12 February 2010
I am trying to apply IRC 108(a)(1)(B) for California purposes, but not Federal. I know under CA RTC 17024.5 that this can be done. My question is, what is the proper procedure to make the election on the California return? I cannot find a procedure anywhere for this particular situation.

DaveFogel (talk|edits) said:

12 February 2010
The California exclusion to exclude COD income for a principal residence (R&TC §17144.5) expired at the end of 2008, and there is presently no principal residence exclusion available under California law. The legislature is working on a conformity bill, but it may not be put in place until later this year (if ever).

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