AB2394 - Personal Income Tax Law: exclusions: real property.

Amended IN Assembly April 20, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 2394 Introduced by Assembly Member Lee February 20, 2026 An act to add and repeal Section 17152.5 to of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 2394, as amended, Lee. Personal Income Tax Law: exclusions: real property. The Personal Income Tax Law, in conformity with federal income tax law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, would exclude from gross income amounts gain received by a qualified taxpayer as a result of the sale or exchange of certain real property. qualified real property, as defined. The bill would define “qualified taxpayer” to mean an individual who is 65 55 years of age or older and who has owned the real property for 20 years or more. on the date of the sale. The bill would define “qualified real property” to mean real property satisfying certain conditions, including the requirement that the property was used by the qualified taxpayer as their primary residence, as specified, and that the property is sold to a natural person. Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals that the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill also would include additional information required for any bill authorizing a new tax expenditure. This bill would take effect immediately as a tax levy. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 17152.5 is added to the Revenue and Taxation Code, to read: 17152.5. (a) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, gross income does not include any income gain received by a qualified taxpayer as a result of the sale or exchange of qualified real property. property made during the taxable year. (b) For purposes of this section, the following definitions shall apply: (1) “Qualified real property” means real property for which both all of the following are true: (A) The qualified taxpayer has, or the qualified taxpayer or their spouse in the case of spouses filing joint returns have, owned the real property for 20 consecutive years or longer. longer as of the date of the sale of the real property. (B) The real property is owned entirely by the taxpayer or, in the case of spouses filing joint returns, entirely by the taxpayer and their spouse. (C) The real property was the primary residence of the qualified taxpayer for at least two of the five years immediately prior to the date of the sale of the real property. (D) The property is sold to a natural person. (2) “Qualified taxpayer” means an individual who is 65 55 years of age or older. older on the date of the sale of the qualified real property. (c) This section shall remain operative only until December 1, 2032, and as of that date is repealed. SEC. 2. For purposes of complying with Section 41 of the Revenue and Taxation Code, as it relates to Section 17152.5 of the Revenue and Taxation Code as added by this act, the Legislature finds and declares the following: (a) The specific goal of the exclusion allowed by Section 17152.5 of the Revenue and Taxation Code is to encourage more homes that have been off the market for decades to be sold to new owners, unlocking inventory for the market and for younger home buyers. (b) There is no available data to collect or report with respect to the exclusion. SEC. 2. SEC. 3. This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.