Peace Corps Home Sale Exception - For sale or exchanges after 5/6/97, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5-year period ending on the date of the sale may reduce the 2-year period by the period of service, not to exceed 18 months.

Assisted Living Housing Development Sale Exclusion - Federal law does not allow special treatment on gains related to the sale of certain assisted housing for low-income residents. California law permits the deferral of such gain, under certain conditions, if the proceeds are reinvested in residential real property (other than a personal residence) within two years of the sale. See R&TC §§ 18041.5 and 24955 for details.

Home Mortgage Debt Relief Basis Adjustment – California belatedly (September 25, 2008) enacted its own version of mortgage debt relief that was effective for years 2007 and 2008, and in mid-2010 enacted conformity – with major differences – effective for principal residence debt relief occurring from January 1, 2009 through 2012. This provision was extended through 2013 (the extension is through 2025 for federal), and various legislative attempts to further extend it have failed. Therefore, the basis of the home may be different for federal and California because the amount of the basis adjustment, if any, resulting from home mortgage debt relief may not be the same. Many taxpayers may qualify for relief by using the insolvency provision. See Chapter 2.09.

Surviving Spouse $500,000 Exclusion – For sales occurring on or after January 1, 2010, California conforms to the $500,000 exclusion of gain for surviving spouses who would have qualified for the $500,000 exclusion immediately prior to their spouse’s death, and where the sale takes place within 2 years of the spouse’s death.

Nonqualified Use Exclusion Reduction – For sales on or after January 1, 2010, California conforms to the federal rule (effective for federal purposes for principal residence sales in 2009 and later) that limits the home sale gain exclusion when there have been periods of nonqualified use after 2008.

Special Rule for Decedents Dying in 2010 - California does not conform to the provisions of IRC Sec 121(d)(11) allowing (a) up to $250,000 gain exclusion to the estate or heir of a decedent dying in 2010 if the estate or heir sells the decedent’s principal residence and the decedent had met the two-out-of-five years use and ownership tests, and (b) tacking on the decedent’s ownership and use periods to that of an heir who occupies the home as a principal residence to determine if the heir meets the two-out-of-five years tests.