SB1633

SB1633 - 572R - Senate Fact Sheet Assigned to FIN��������������������������������������������������������������������������������������������������������������������� FOR COMMITTEE ARIZONA STATE SENATE Fifty-Seventh Legislature, Second Regular Session REVISED FACT SHEET FOR S.B. 1633 income tax; subtraction; primary residence Purpose Establishes, for taxable years beginning January 1, 2027, an individual income tax subtraction for the amount of any net capital gains derived from the sale or exchange of a taxpayer's primary residence . Background A capital gain is acquired when an individual sells an asset for more than the asset cost. Capital gains are classified as long-term or short-term gains. A long-term capital gain applies to assets that an individual holds for at least one year before disposal. A short-term capital gain applies to assets that are held for one year or less ( IRS ). Individual income tax is levied on Arizona residents� taxable income. The tax base begins with Arizona gross income, which is equivalent to the taxpayer's federal adjusted gross income (FAGI). Statute authorizes various amounts to be added or subtracted when computing an individual's Arizona adjusted gross income which is further reduced by standard or itemized deductions to arrive at Arizona taxable income. To arrive at FAGI, federal law allows an individual income tax subtraction for the amount of taxable net capital gains derived from the sale or exchange of a taxpayer's principal residence. The federal subtraction is capped at $250,000 for single filers or $500,000 for married couples filing jointly ( 26 U.S.C. � 121 ). Statute allows a 25 percent individual income tax subtraction for net long-term capital gains included in FAGI for the taxable year that is derived from any asset acquired after December 31, 2011 ( A.R.S. � 43-1022 ). The Joint Legislative Budget Committee (JLBC) fiscal note on S.B. 1633 estimates a decrease to state General Fund revenues of $18.4 million annually, beginning in FY 2028. JLBC notes that due to a lack of detailed data on capital gains from real estate transactions the estimate is speculative and should be interpreted with caution ( JLBC Fiscal Note ). Provisions 1. Establishes, for taxable years beginning January 1, 2027, an individual income tax subtraction for the amount of any net capital gains included in FAGI for the taxable year that is derived from the sale or exchange of a taxpayer's property, if the property was the taxpayer's primary residence for at least five of the preceding taxable years. 2. Becomes effective on the general effective date. Revisions � Updates the fiscal impact statement. Prepared by Senate Research February 17, 2026 MG/SJ/hk