Rev. & Tax. Code, § 17144.5

(a) (1) Section 108(a)(1)(E) of the Internal Revenue Code is modified to provide that the amount excluded from gross income shall not exceed five hundred thousand dollars ($500,000) (two hundred fifty thousand dollars ($250,000) in the case of a married individual filing a separate return).

(2) Section 108(a)(1)(E) of the Internal Revenue Code is modified by substituting “before January 1, 2015,” in lieu of clauses (i) and (ii).

(b) Section 108(h)(2) of the Internal Revenue Code is modified by substituting the phrase “(within the meaning of section 163(h)(3)(B), applied by substituting ‘$800,000 ($400,000’ for ‘$1,000,000 ($500,000’ in clause (ii) thereof)” for the phrase “(within the meaning of section 163(h)(3)(B), applied by substituting ‘$2,000,000 ($1,000,000’ for ‘$1,000,000 ($500,000’ in clause (ii) thereof)” contained therein.

(c) This section shall apply to discharges of indebtedness occurring on or after January 1, 2007, and, notwithstanding any other law to the contrary, no penalties or interest shall be due with respect to the discharge of qualified principal residence indebtedness during the 2007 or 2009 taxable year regardless of whether or not the taxpayer reports the discharge on their return for the 2007 or 2009 taxable year.

(d) The amendments made by Section 202 of the American Taxpayer Relief Act of 2012 (Public Law 112-240) to Section 108 of the Internal Revenue Code shall apply.

(e) The changes made to this section by Section 1 of Chapter 152 of the Statutes of 2014 shall apply to discharges of indebtedness that occur on or after January 1, 2013, and before January 1, 2014, and, notwithstanding any other law, no penalties or interest shall be due with respect to the discharge of qualified principal residence indebtedness during the 2013 taxable year, regardless of whether the taxpayer reports the discharge on their income tax return for the 2013 taxable year.