Details of Public Law 116-260, section 114 , Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness

The provision extends for five additional years, before 1/1/2026, the exclusion from gross income for discharges of qualified principal residence indebtedness.

The provision also reduces the acquisition indebtedness limitation from $2,000,000 ($1,000,000 in the case of a married individual filing a separate return) to $750,000 ($375,000 in the case of a married individual filing a separate return) for purposes of the discharge of qualified principal residence indebtedness.

California generally conforms to the federal definition of gross income, including income from the discharge of indebtedness, and conformed to the federal rules for the exclusion of discharge-of-indebtedness income by reason of a discharge of qualified principal residence indebtedness (i.e., mortgage forgiveness debt relief), as of the specified date of 1/1/2015, with the modifications described below:

The exclusion does not apply to discharges occurring after 2013. The California exclusion applies to discharges occurring on or after 1/1/2007, and before 1/1/2014. The federal exclusion generally applies to discharges occurring on or after 1/1/2007, and before 1/1/2026.

The maximum amount of qualified principal residence indebtedness (i.e., the amount of principal residence indebtedness eligible for the exclusion) is reduced. The California maximum amount of qualified principal residence indebtedness is $800,000 ($400,000 in the case of a married/registered domestic partner (RDP) individual filing a separate return). The federal maximum amount of qualified principal residence indebtedness is $2,000,000 ($1,000,000 in the case of a married individual filing a separate return).

The total amount that may be excluded from gross income is limited. For discharges occurring in 2007 or 2008, California limits the total amount that may be excluded from gross income to $250,000 ($125,000 in the case of a married/RDP individual filing a separate return). For discharges occurring in 2009, 2010, 2011, 2012, or 2013, California limits the total amount that may be excluded from gross income to $500,000 ($250,000 in the case of a married/RDP individual filing a separate return). There is no comparable federal limitation in any year.

Interest and penalties are not imposed with respect to 2007, 2009, or 2013 discharges. California prohibits the imposition of any interest or penalties with respect to discharges of qualified principal residence that occurred during the 2007, 2009, or 2013 taxable years. There is no comparable federal prohibition.

20/21 21/22 22/23 23/24 N/A $ (27,000,000) $ (26,000,000) $ (27,000,000)