Discussion:Cancellation of debt in california - SB 401 info at end

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Tax Questions --> Cancellation of debt in california - SB 401 info at end


To jump to discussion on SB 401, California conformity, click: SB401


Contents

General Info

Ybsad (talk|edits) said:

23 February 2010

has anyone come across with a 1099-c, no fed tax as it's a primary residence, but when it comes to the state, tax has to be paid on the cod amount per tax bracket? does california not conform to fed's ruling? thanks!

R2 (talk|edits) said:

23 February 2010
Partial conformity in years prior to 2009. Total non-conformity in 2009.

Laketahoecpa (talk|edits) said:

23 February 2010
Now here's the funny part - you can't deduct state taxes on fed return if paid on income that was exempt from federal income tax. So the portion of state tax attributable to COD income taxable to Calif but not fed isn't deduction on fed return.

Ybsad (talk|edits) said:

24 February 2010
that really hurts then. a lot lost their houses because they couldn't pay their loans any longer then comes tax time when they have to pay tax on what was forgiven them. is this a state to state basis or is it just california? thanks for the input!

R2 (talk|edits) said:

24 February 2010
California uses an ancient version of the Internal Revenue Code and incorporates it into the state tax code. I understand that MA does the same.

CIP1040 (talk|edits) said:

24 February 2010
Ybsad, you may want to keep an eye on California SB 32 (8X) I believe it passed the senate and is now in the assembly.

SB 32 (8X) brings the state into conformity with the federal Mortgage Forgiveness Debt Relief Act of 2007 and applies retroactively to short sales in 2009.

You can follow the bill at http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=sbx8_32&sess=CUR&house=B&search_type=email

SGBM (talk|edits) said:

4 March 2010
Hi, I am new in this forum.

I have one doubt: One of my customer (on California) lost his house on 10/20/09 He is insolvency. Can he apply for Federal under "Qualified Principal Residence Indebtdness". And for California for "Insolvency"

Thank you

R2 (talk|edits) said:

4 March 2010
Yes.

SGBM (talk|edits) said:

4 March 2010
Thank you R2

QPRI for federal, insolvency for California

Lalva (talk|edits) said:

12 March 2010
I have the same situation as SGBM. I am using Pro Series Professional tax software, and I can't find the way to elect the "Qualified Principal Residence Indebtedness" for the federal return and a different option for California (Insolvency). Plus I read in the CA FTB website that you cannot elect a different exception for CA.

R2, I know I am probably wrong, but I read it somewhere in the CA FTB website (I cannot find it now). Can you please point me to where it says that we can have a different election for CA (for my records).

Also, what would you do in this situation?:

A) File the return with the Qualified Principal Residence Indebtedness election for both Fed & CA, and wait (and pray) that the state of CA conforms

B) File the federal return with the Qualified Principal Residence Indebtedness election, and (if possible) the insolvency election for CA. This option would be better now, but if CA conforms later with federal, my clients would benefit more with the A) option.

Thank you in advance.

DaveFogel (talk|edits) said:

12 March 2010
HOLD EVERYTHING!! SBx8 32 passed the California Assembly 3/8/2010, and passed the Senate 3/11/2010 (yesterday). It has been sent to the Governor for signing into law.

In part, the bill provides partial conformity to IRC §108(h) (the principal residence exclusion for cancellation of debt income). For California purposes, the exclusion would be limited to $500,000 of income from discharge of up to $800,000 of debt on a principal residence (these numbers are cut in half for married filing separate) for discharges occurring in 2007, 2008 and 2009.

Last year, AB 1580 would have provided partial conformity to IRC sec. 108(h), but it was vetoed by Governor Schwarzenegger on 10/11/09 because of a provision inserted at the last moment that would have imposed a penalty for filing a claim for refund in an excessive amount. The penalty applied only if the taxpayer's AGI was above $150,000 ($75,000 for a separate return). SBx8 32 includes the same provision (California Revenue & Taxation Code sec. 19165), but it applies only if the taxpayer's AGI is above $20 million ($10 million for a separate return). So, this time around, the Governor might not veto the bill.

Belle (talk|edits) said:

March 12, 2010
Dave, thanks for keeping us up to speed.

(I think we need a special forum designation for you "Foreclosure Specialist".)

Lalva (talk|edits) said:

12 March 2010
Dave thank you so much for keeping us up to date!

How long do you think it will take?

DaveFogel (talk|edits) said:

13 March 2010
I'm no legislative expert, but I believe we will know within a couple of weeks. According to what I've read, within 12 days after receiving a bill passed by the Legislature, the Governor may sign it into law, allow it to become law without his signature, or veto it.

If the Governor vetoes the bill, his veto can be overridden by a vote of two-thirds of both houses. The Assembly passed SBx8 32 by a vote of 47 to 29, and the Senate passed it by a vote of 21 to 15, neither which is the two-thirds necessary to override a veto.

R2 (talk|edits) said:

14 March 2010
The governor is not expected to sign this bill.

Lalva (talk|edits) said:

15 March 2010
Ugh!!!!

Lalva (talk|edits) said:

15 March 2010
Fingers crossed!

OK, going back to my former question then, my software (ProSeries Professional) doesn't let me choose Qualified Principal Residence Indebtedness" for the federal return and a different option for California (Insolvency). And I read in the CA FTB website that you cannot elect a different exception for CA (I won't put my hand in the fire for this, but I am convinced that I read it). Can someone show me the way, or tell me if a different option can be chosen for CA purposes?

Thank you.

DaveFogel (talk|edits) said:

16 March 2010
You can use the principal residence exclusion of IRC §108(h) for Federal, and the insolvency exclusion for California, but you'll have to file a paper return for California, override some items to make it come out correctly, and attach a different Form 982 that selects the insolvency exclusion instead. California conforms to the insolvency exclusion of IRC §108(a)(1)(B). See R&TC §17131. Here's a link to a page on the FTB's website that states this: http://www.ftb.ca.gov/professionals/taxnews/2009/July/Article_9.shtml

Lalva (talk|edits) said:

16 March 2010
I found the page in the FTB of California: http://www.ftb.ca.gov/professionals/taxnews/2009/October/Article_11.shtml

It talks about the business foreclosures or short sales, and maybe the rules are different, but it says: "Under California law, if a taxpayer makes an election for federal income tax purposes that election is binding for California income tax purposes and no separate California election is allowed".

Alexander15 (talk|edits) said:

16 March 2010
The LA Times is reporting that the governor is not going to sign SBX8 32:

"Gov. Arnold Schwarzenegger's administration announced Monday that he would not sign a bill passed by lawmakers that would ease taxes for some homeowners and green energy companies, largely because the measure would ramp up penalties against those who abuse such tax credits. " -- http://www.latimes.com/news/local/la-me-taxes16-2010mar16,0,5864787.story

DaveFogel (talk|edits) said:

16 March 2010
Lalva, the article to which you refer talks about the election to exclude COD income using the Qualified Real Property Business Indebtedness exclusion of IRC §108(c). This is a statutory election (an election provided for in the statute) that is found at IRC §108(c)(3)(C). Neither the principal residence exclusion of IRC §108(h) nor the insolvency exclusion of IRC §108(a)(1)(B) are elections, and therefore, there is nothing to bind the taxpayer to such a choice for California purposes.

Lalva (talk|edits) said:

16 March 2010
Dave, thank you so much for your explanation.

I have learned a lot reading your very informative articles about short sales and foreclosures. We are so lucky to have you in this forum. We are learning a lot from masters like you (and a few others- you know who you are!!) You are great!!

IDrinkYour Milkshake (talk|edits) said:

16 March 2010
You can still e-file both. Just do the Fed first, and then change to do the CA.

LisainSR707 (talk|edits) said:

16 March 2010
Lalva, Im using ProSeries Professional and I wrestled with a return similar to what you are and the only way I found to get the amount excluded by insolvency to flow correctly to CA was to mark YES to questions 42 and 43 on the Canceled Debt Worksheet. See if that works for your situation.

Lalva (talk|edits) said:

16 March 2010
Thank you, LisainSR707. Yes that is much better, but not perfect, since my client's insolvency doesn't wipe out the debt completely. I think I'll have to do what IDrinkYourMilkshake says and e-file the federal first, then go back and check box 43 in the cancellation of debt worksheet and e-file the CA that way.

Lalva (talk|edits) said:

18 March 2010
It looks like not all is lost for Californians that lost their homes in short sales or foreclosures:

http://www.latimes.com/news/local/la-me-budget17-2010mar17,0,3161739.story?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+StatelineorgRss-TaxesBudget+%28Stateline.org+RSS+-+Taxes+%26+Budget%29

Lalva (talk|edits) said:

18 March 2010
Another question. If we decide to file claiming the insolvency exception for the state, can we amend the return if the principal residence exclusion passes later on?

DaveFogel (talk|edits) said:

26 March 2010
Lalva, I don't see why not.

Gov. Schwarzenegger vetoed SBx8 32 yesterday, so still no California conformity. Here is a link to his veto message: http://gov.ca.gov/pdf/press/2009bills/SBX8_32Wolk_VetoMessage.pdf

Lalva (talk|edits) said:

26 March 2010
Thank you, Dave, for your answer and for keeping us informed up to the minute.

Alexander15 (talk|edits) said:

6 April 2010
Action is promised for California mortgage forgiveness relief: http://www.sacbee.com/2010/04/06/v-print/2657410/california-expected-to-cancel.html

Relief appears imminent for thousands of Sacramento homeowners hit with state tax bills for mortgage debts forgiven in 2009.

State lawmakers said Monday they plan to cancel the state tax obligations with a vote Thursday.

Shannon Murphy, spokeswoman for Assembly Speaker John Pérez, D-Los Angeles, said legislation will go before the Assembly Revenue and Tax Committee today and the Appropriations Committee on Wednesday, and will receive a full vote Thursday.

A similar Senate floor vote planned Thursday would send the bill immediately to Gov. Arnold Schwarzenegger, who has repeatedly stated his support. The new bill is similar to one he vetoed March 25. But this time it omits a part he opposed – financial penalties for businesses that routinely seek state tax refunds. Democrats removed the section despite their contention that some firms "fish" for refunds whether or not they're owed.

SDZoo (talk|edits) said:

8 April 2010
Maybe this is already discussed, but CA does allow the debt forgiveness if it was for non-recourse debt, usually the first mortgage. Currently says that recourse debt forgiven is taxable, usually a home equity line or a refinance.

Let's home the legislature passes something the Gov. can sign.....

SB 401 (2010), California conformity

Alexander15 (talk|edits) said:

8 April 2010
The Legislature passed a bill Thursday helping homeowners who received mortgage modifications, lost their homes to foreclosure or sold their houses for less than they owed on their mortgages.

The bill would prevent the canceled debt from being treated as taxable income. It conforms California law to a federal tax change that runs through 2012.

The Assembly and Senate passed the bill after removing a tax-related provision that drew objections from Gov. Arnold Schwarzenegger. Some Republicans continued to oppose it because it introduces other taxes.

The bill now goes to the governor's desk.

Details here: http://www.sacbee.com/2010/04/08/2664978/calif-lawmakers-pass-housing-crisis.html

Belle (talk|edits) said:

April 8, 2010
Spidell's flash email today has a good recap on SB 401 - it's not gated on the Spidell site, you can get to it here if you aren't already subscribing: Spidell SB 401 flash.

this post has been edited as Belle requested, since Spidell's flash info is copyrighted.

Trillium (talk|edits) said:

10 April 2010
bumping this discussion since it has good sources of info on SB 401.

And adding another link, courtesy of Steve Kassel: LATimes, California Legislature approves tax break

R2 (talk|edits) said:

10 April 2010
If you need to see the actual legislative language, visit this website:

http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0401-0450/sb_401_bill_20100408_enrolled.pdf

KatieJ (talk|edits) said:

10 April 2010
According to the Cal-Tax newsletter, a spokesman for the Governor said he will sign the bill.

Whew.

Trillium (talk|edits) said:

12 April 2010
bump for this week's SB 401 updates

CJackson (talk|edits) said:

12 April 2010
In regards to the SB401 that everyone has been posting about and its possibility that the Governor will sign the bill, I was wondering would it be wiser to wait (through extension) until everything has finalized and official or go ahead and file 982 insolvency and amend the return at a later date?

There's talk that the Governor will sign, but before any of that happens (or if there's a change of heart), I really can't be 100% certain he will pass the bill. Just making sure my client doesn't get the short end of all of this hype.

Alexander15 (talk|edits) said:

12 April 2010
CJackson, I would think that if the insolvency exclusion takes care of the full amount of the COD income, then you could use it and be done with the return.

CJackson (talk|edits) said:

12 April 2010
Alexander: The insolvency exclusion would be sufficient for the time being, but my client would benefit from SB401 a great deal.

KatieJ (talk|edits) said:

12 April 2010
If it made a big difference, I'd extend, making any payment based on the assumption that Gov will sign, which everybody seems to believe he will. Then you won't have to do an amended return.

I don't know what Arnie is waiting for. Just checked Leginfo and there is still no indication he has signed it. Hurry up for Pete's sake!

R2 (talk|edits) said:

13 April 2010
The Governor signed SB 401 about 3 hours ago (Monday).

Lalva (talk|edits) said:

13 April 2010
Now let's pray that the kids from Intuit update the California tax software soon :-)

Belle (talk|edits) said:

April 13, 2010
I wouldn't want to bet that will happen before 4/15 (software updated). But overriding shouldn't be too cumbersome.

DaveFogel (talk|edits) said:

13 April 2010
Here is a link to the "enrolled" version of SB 401 (the "chaptered" version hasn't yet posted to the California Legislative Info website): http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0401-0450/sb_401_bill_20100408_enrolled.pdf

There is now partial California conformity to IRC §108(h) for 2007 through 2012. Please note that prior to enactment of SB 401, the principal residence exclusion for California purposes was limited to $250,000 for 2007 and 2008 (half for married filing separate). SB 401 increases the exclusion to $500,000 for these years (half for married filing separate), so you might be preparing some amended California returns.

PhoenixTax (talk|edits) said:

13 April 2010
Great, now i have the pleasure of informing my client that (after having spent a couple weeks compiling complaining about having to compile evidence of her insolvency at March 2009) it was all for naught, 'we don't need it'.

So, out of curiosity, for those who've filed insolvency who will be charging their client(s) for the amendment to take the exclusion instead?

DaveFogel (talk|edits) said:

13 April 2010
Explain to the clients that you were only following the law that was in effect at the time you were preparing the return, and that Gov. Schwarzenegger had twice before vetoed a bill that included the principal residence exclusion. You can't be responsible for the what the idiots political representatives do or don't do in Sacramento.

Lalva (talk|edits) said:

14 April 2010
I just waited until the last minute. Actually I am still waiting to see if ProSeries Professional updates. Otherwise I'll do the trick and send the CA return. The federal were e-filed.

So to answer your question, no additional charges to my clients.

CJackson (talk|edits) said:

14 April 2010
Anyone with any luck or news about any updates in the software?

Phoenix: Likewise, no charges to the clients since I waited -- hence no amendment to the return.

Lalva (talk|edits) said:

15 April 2010
No yet!!

To join in on this discussion, you must first log in.
Personal tools