Personal income tax: exclusions: interest income: theft.

Assembly Member Ta's proposal to modify California's tax code would create a new exclusion from gross income for certain investment interest income that taxpayers lose through theft or unauthorized transfers. Starting in 2026, taxpayers could exclude from their taxable income any investment interest that was stolen or transferred without their consent during the tax year.

The measure defines "qualified investment interest" as interest income generated on investments that is subsequently stolen, sold, or transferred against the taxpayer's will, resulting in the taxpayer losing possession or control of those funds. While allowing exclusion of the lost interest income from gross income calculations, the bill explicitly prohibits taxpayers from claiming additional deductions for any amounts excluded under this provision.

The legislation takes effect immediately upon passage as a tax levy under the California Constitution, though its provisions apply only to tax years beginning January 1, 2026 and later. This timing allows tax authorities to update relevant forms and guidance while giving financial institutions and taxpayers time to prepare for implementation of the new exclusion requirements.