REPORT TITLE:
Taxation; Prin. Res.; Loss


DESCRIPTION:
Allows a deduction and tax credit for the capital loss sustained
by an individual incurred upon the sale or exchange of the
individual's principal residence.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           212
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.
 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 235, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "�235-     Capital loss recognition and tax credit for the
 
 5 loss incurred upon the sale or exchange of an individual's
 
 6 principal residence.  (a)  If an individual resident taxpayer
 
 7 incurs a loss upon the sale or exchange of the individual's
 
 8 principal residence, the loss shall be deductible as a capital
 
 9 loss in the taxable year the loss was incurred for purposes of
 
10 sections 165 and 1211 of the Internal Revenue Code to the extent
 
11 they are operative in this chapter.
 
12      (b)  The amount of net capital loss, if any, to be carried
 
13 over pursuant to section 1212(b) of the Internal Revenue Code to
 
14 the extent it is operative in this State shall be the net capital
 
15 loss including the loss upon the sale or exchange of the
 
16 individuals' principal residence, less the amount of the tax
 
17 credit claimed pursuant to subsections (c), (d), and (e).
 
18      (c)  If the individual has a net capital loss in the taxable
 
19 year the capital loss pursuant to subsection (a) is recognized,
 

 
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 1 the individual may claim a tax credit against the resident
 
 2 taxpayer's individual income tax liability for the taxable year
 
 3 in which the loss was incurred and the individual income tax
 
 4 return is being filed; provided that:
 
 5      (1)  The individual has not claimed or received a tax credit
 
 6           for any previous taxable year for the loss incurred
 
 7           upon the sale or exchange of the individual's principal
 
 8           residence;
 
 9      (2)  The individual is not claimed or not otherwise eligible
 
10           to be claimed as a dependent by another taxpayer for
 
11           Hawaii state individual income tax purposes; and
 
12      (3)  The claim for the tax credit under this section,
 
13           including any amended claim, is filed on or before the
 
14           end of the twelfth month following the close of the
 
15           taxable year for which the credit may be claimed.
 
16           Failure to comply with this paragraph shall constitute
 
17           a waiver of the right to claim the credit.
 
18      (d)  The tax credit pursuant to this section shall be the
 
19 the individual's net capital losses except that the tax credit
 
20 shall not exceed the individual's total tax liability for the
 
21 taxable year for which the tax credit is being claimed.
 
22      (e)  The tax credit claimed by a resident individual
 
23 taxpayer pursuant to this section shall be deductible after all
 

 
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 1 other tax credits claimed by the individual taxpayer have been
 
 2 deducted from the taxpayer's individual income tax liability, if
 
 3 any, for the taxable year in which properly claimed.  If the tax
 
 4 credit claimed pursuant to this section exceeds the amount of
 
 5 income tax payment due after all other claimed tax credits have
 
 6 been deducted from the resident individual taxpayer's income tax
 
 7 liability, the excess of credit shall not be refunded to the
 
 8 resident taxpayer."
 
 9      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "�235-2.4  Operation of certain Internal Revenue Code
 
12 provisions.(a)  Section 63 (with respect to taxable income
 
13 defined) of the Internal Revenue Code shall be operative for the
 
14 purposes of this chapter, except that the standard deduction
 
15 amount in section 63(c) of the Internal Revenue Code shall
 
16 instead mean:
 
17      (1)  $1,900 in the case of:
 
18           (A)  A joint return as provided by section 235-93, or
 
19           (B)  A surviving spouse (as defined in section 2(a) of
 
20                the Internal Revenue Code),
 
21      (2)  $1,650 in the case of a head of household (as defined
 
22           in section 2(b) of the Internal Revenue Code),
 
23      (3)  $1,500 in the case of an individual who is not married
 

 
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 1           and who is not a surviving spouse or head of household,
 
 2           or
 
 3      (4)  $950 in the case of a married individual filing a
 
 4           separate return. 
 
 5 Section 63(c)(4) shall not be operative in this State.  Section
 
 6 63(c)(5) shall be operative, except that the limitation on basic
 
 7 standard deduction in the case of certain dependents shall be the
 
 8 greater of $500 or such individual's earned income.  Section
 
 9 63(f) shall not be operative in this State.
 
10      (b)  Section 72 (with respect to annuities; certain proceeds
 
11 of endowment and life insurance contracts) of the Internal
 
12 Revenue Code shall be operative for purposes of this chapter and
 
13 be interpreted with due regard to section 235-7(a), except that
 
14 the ten per cent additional tax on early distributions from
 
15 retirement plans in section 72(t) shall not be operative for
 
16 purposes of this chapter.
 
17      (c)  Section 121 (with respect to exclusion of gain from
 
18 sale of principal residence) of the Internal Revenue Code shall
 
19 be operative for purposes of this chapter, except that for the
 
20 election under section 121(f), a reference to section 1034
 
21 treatment means a reference to section 235-2.4(n) in effect for
 
22 taxable year 1997.
 
23      (d)  Section 165 (with respect to losses) of the Internal
 

 
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 1 Revenue Code shall be operative in this State and with respect to
 
 2 the limitation on the deduction of losses of individuals in
 
 3 section 165(c), an individual shall be allowed to deduct the loss
 
 4 incurred upon the sale or exchange of the individual's principal
 
 5 residence pursuant to section 235-  .
 
 6      [(d)] (e)  Section 213 (with respect to medical, dental,
 
 7 etc., expenses) of the Internal Revenue Code shall be operative,
 
 8 except that subsections (d)(1)(C) with respect to long-term care
 
 9 services, (d)(1)(D) as it applies to long-term care insurance
 
10 contract premiums, (d)(7) as it applies to long-term care
 
11 insurance contract premiums, and (d)(10) as it applies to
 
12 eligible long-term care premiums shall not be operative in this
 
13 State.
 
14      [(e)] (f)  Section 219 (with respect to retirement savings)
 
15 of the Internal Revenue Code shall be operative for the purpose
 
16 of this chapter.  For the purpose of computing the limitation on
 
17 the deduction for active participants in certain pension plans
 
18 for state income tax purposes, adjusted gross income as used in
 
19 section 219 as operative for this chapter means federal adjusted
 
20 gross income.
 
21      [(f)] (g)  Section 220 (with respect to medical savings
 
22 accounts) of the Internal Revenue Code shall be operative for the
 
23 purpose of this chapter, but only with respect to medical
 

 
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 1 services accounts that have been approved by the secretary of the
 
 2 Treasury of the United States.
 
 3      [(g)] (h)  In administering the provisions of sections 410
 
 4 to 417 (with respect to special rules relating to pensions,
 
 5 profit sharing, stock bonus plans, etc.), sections 418 to 418E
 
 6 (with respect to special rules for multiemployer plans), and
 
 7 sections 419 and 419A (with respect to treatment of welfare
 
 8 benefit funds) of the Internal Revenue Code, the department of
 
 9 taxation shall adopt rules under chapter 91 relating to the
 
10 specific requirements under such sections and to such other
 
11 administrative requirements under those sections as may be
 
12 necessary for the efficient administration of sections 410 to
 
13 419A.
 
14      In administering sections 401 to 419A (with respect to
 
15 deferred compensation) of the Internal Revenue Code, Public Law
 
16 93-406, section 1017(i), shall be operative for the purposes of
 
17 this chapter.
 
18      In administering section 402 (with respect to the taxability
 
19 of beneficiary of employees' trust) of the Internal Revenue Code,
 
20 the tax imposed on lump sum distributions by section 402(e) of
 
21 the Internal Revenue Code shall be operative for the purposes of
 
22 this chapter and the tax imposed therein is hereby imposed by
 
23 this chapter at the rate determined under this chapter.
 

 
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 1      [(h)] (i)  Section 468B (with respect to special rules for
 
 2 designated settlement funds) of the Internal Revenue Code shall
 
 3 be operative for the purposes of this chapter and the tax imposed
 
 4 therein is hereby imposed by this chapter at a rate equal to the
 
 5 maximum rate in effect for the taxable year imposed on estates
 
 6 and trusts under section 235-51.
 
 7      [(i)] (j)  Section 469 (with respect to passive activities
 
 8 and credits limited) of the Internal Revenue Code shall be
 
 9 operative for the purposes of this chapter.  For the purpose of
 
10 computing the offset for rental real estate activities for state
 
11 income tax purposes, adjusted gross income as used in section 469
 
12 as operative for this chapter means federal adjusted gross
 
13 income.
 
14      [(j)] (k)  Sections 512 to 514 (with respect to taxation of
 
15 business income of certain exempt organizations) of the Internal
 
16 Revenue Code shall be operative for the purposes of this chapter
 
17 as provided in this subsection.
 
18      "Unrelated business taxable income" means the same as in the
 
19 Internal Revenue Code, except that in the computation thereof
 
20 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
21 apply, and in the determination of the net operating loss
 
22 deduction there shall not be taken into account any amount of
 
23 income or deduction which is excluded in computing the unrelated
 

 
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 1 business taxable income.  Unrelated business taxable income shall
 
 2 not include any income from a prepaid legal service plan.
 
 3      For a person described in section 401 or 501 of the Internal
 
 4 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
 5 section 235-51 or 235-71 shall be imposed upon the person's
 
 6 unrelated business taxable income.
 
 7      [(k)] (l)  Section 521 (with respect to cooperatives) and
 
 8 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
 9 and their patrons) of the Internal Revenue Code shall be
 
10 operative for the purposes of this chapter as to any cooperative
 
11 fully meeting the requirements of section 421-23, except that
 
12 Internal Revenue Code section 521 cooperatives need not be
 
13 organized in Hawaii.
 
14      [(l)] (m)  Sections 527 (with respect to political
 
15 organizations) and 528 (with respect to certain homeowners
 
16 associations) of the Internal Revenue Code shall be operative for
 
17 the purposes of this chapter and the taxes imposed in each such
 
18 section are hereby imposed by this chapter at the rates
 
19 determined under section 235-71.
 
20      [(m)] (n)  Section 641 (with respect to imposition of tax)
 
21 of the Internal Revenue Code shall be operative for the purposes
 
22 of this chapter subject to the following:
 
23      (1)  The deduction for exemptions shall be allowed as
 

 
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 1           provided in section 235-54(b).
 
 2      (2)  The deduction for contributions and gifts in
 
 3           determining taxable income shall be limited to the
 
 4           amount allowed in the case of an individual, unless the
 
 5           contributions and gifts are to be used exclusively in
 
 6           the State.
 
 7      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
 8           Code as applied by section 641 of the Internal Revenue
 
 9           Code is hereby imposed by this chapter at the rate and
 
10           amount as determined under section 235-51 on estates
 
11           and trusts.
 
12      [(n)] (o)  Section 644 (with respect to special rule for
 
13 gain on property transferred to trust at less than fair market
 
14 value) of the Internal Revenue Code shall be operative for the
 
15 purposes of this chapter and the tax imposed therein is hereby
 
16 imposed by this chapter at the rate determined under this
 
17 chapter; except that the determination of the interest rate
 
18 established under section 6621 of the Internal Revenue Code
 
19 referred to in section 644(a)(2) of the Internal Revenue Code
 
20 shall instead be the interest rate established under section 231-
 
21 39(b)(4).
 
22      [(o)] (p)  Section 667 (with respect to treatment of amounts
 
23 deemed distributed by trusts in preceding years) of the Internal
 

 
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 1 Revenue Code shall be operative for the purposes of this chapter
 
 2 and the tax imposed therein is hereby imposed by this chapter at
 
 3 the rate determined under this chapter; except that the reference
 
 4 to tax-exempt interest to which section 103 of the Internal
 
 5 Revenue Code applies in section 667(a) of the Internal Revenue
 
 6 Code shall instead be a reference to tax-exempt interest to which
 
 7 section 235-7(b) applies.
 
 8      [(p)] (q)  Section 685 (with respect to treatment of
 
 9 qualified funeral trusts) of the Internal Revenue Code shall be
 
10 operative for purposes of this chapter, except that the tax
 
11 imposed under this chapter shall be computed at the tax rates
 
12 provided under section 235-51, and no deduction for the exemption
 
13 amount provided in section 235-54(b) shall be allowed.  The cost-
 
14 of-living adjustment determined under section 1(f)(3) of the
 
15 Internal Revenue Code shall be operative for the purpose of
 
16 applying section 685(c)(3) under this chapter.
 
17      [(q)] (r)  Section 1212 (with respect to capital loss
 
18 carrybacks and carryforwards) of the Internal Revenue Code shall
 
19 be operative for the purposes of this chapter; except that for
 
20 the purposes of this chapter the capital loss carryback
 
21 provisions of section 1212 shall not be operative and the capital
 
22 loss carryforward allowed by section 1212(a) shall be limited to
 
23 five years.
 

 
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 1      [(r)] (s)  Subchapter S (sections 1361 to 1379) (with
 
 2 respect to tax treatment of S corporations and their
 
 3 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
 4 operative for the purposes of this chapter as provided in part
 
 5 VII.
 
 6      [(s)] (t)  Subchapter C (sections 6221 to 6233) (with
 
 7 respect to tax treatment of partnership items) of chapter 63 of
 
 8 the Internal Revenue Code shall be operative for the purposes of
 
 9 this chapter.
 
10      [(t)] (u)  Subchapter D (sections 6240 to 6255) (with
 
11 respect to simplified audit procedures for electing large
 
12 partnerships) of the Internal Revenue Code shall be operative for
 
13 the purposes of this chapter, with due regard to chapter 232
 
14 relating to tax appeals.
 
15      [(u)] (v)  Section 7518 (with respect to capital
 
16 construction fund for commercial fishers) of the Internal Revenue
 
17 Code shall be operative for the purposes of this chapter.
 
18 Qualified withdrawals for the acquisition, construction, or
 
19 reconstruction of any qualified asset which is attributable to
 
20 deposits made before the effective date of this section shall not
 
21 reduce the basis of the asset when withdrawn.  Qualified
 
22 withdrawals shall be treated on a first-in-first-out basis."
 
23      SECTION 3.  Statutory material to be repealed is bracketed.
 

 
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 1 New statutory material is underscored.
 
 2      SECTION 4.  This Act, upon its approval, shall apply to
 
 3 taxable years beginning after December 31, 1998.
 
 4 
 
 5                           INTRODUCED BY:_________________________