Section of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, is modified as follows: (

a) The two-year period in

Section 121(

a) of the Internal Revenue Code shall be reduced by the period of the taxpayer’s service, not to exceed months, in the Peace Corps during the five-year period ending on the date of the sale or exchange. (

b) If the taxpayer is prohibited from filing a joint return pursuant to

Section 18521,

Section 121(b)(2)(

A) of the Internal Revenue Code shall nevertheless be treated as being satisfied if the taxpayer files a joint return for federal income tax purposes for the same taxable year. However, in no instance shall the total amount excludable from gross income under

Section 121(

a) of the Internal Revenue Code with respect to any sale or exchange exceed the maximum amount allowed by

Section 121(

b) of the Internal Revenue Code. (c)

(1) If a taxpayer has, at any time, made an election for federal purposes under

Section 121(

f) of the Internal Revenue Code not to have

Section of the Internal Revenue Code apply to a sale or exchange,

Section of the Internal Revenue Code shall not apply to that sale or exchange for state purposes, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5, the federal election shall be binding for purposes of this part, and that election shall be treated as an election to include in gross income for purposes of this part all the gain from the sale or exchange of that property, including that amount which, but for that election, would have been excluded from income under

Section 121(

a) of the Internal Revenue Code for state purposes.

(2) If a taxpayer fails to make an election for federal purposes under

Section 121(

f) of the Internal Revenue Code to not have

Section of the Internal Revenue Code apply to a sale or exchange, no election under

Section 121(

f) of the Internal Revenue Code shall be allowed for state purposes,

Section of the Internal Revenue Code shall apply to that sale or exchange for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5. (d)

(1) If a taxpayer has, at any time, made an election for federal purposes under

Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or

Section 312(d)(4) of that act, relating to binding contracts, to not have the amendments made by

Section of the Taxpayer Relief Act of 1997 (Public Law 105-34) apply to a sale or exchange, the amendments made by the act adding this subdivision shall not apply to that sale or exchange, Sections 1, 4, and of

Chapter of the Statutes of shall not apply to that sale or exchange, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5, and the federal election shall be binding for purposes of this part.

(2) If a taxpayer fails to make an election for federal purposes under

Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or

Section 312(d)(4) of that act, relating to binding contracts, to not have the amendments made by

Section of the Taxpayer Relief Act of 1997 (Public Law 105-34) apply to a sale or exchange, an election under

Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to sales before date of enactment, or

Section 312(d)(4) of that act, relating to binding contracts, shall not be allowed for state purposes, the amendments made by the act adding this subdivision shall apply to that sale or exchange, Sections 1, 4, and of

Chapter of the Statutes of shall apply to that sale or exchange, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5. (e)

(1) If a taxpayer has, at any time, made or revoked an election for federal purposes under

Section 121(d)(9) of the Internal Revenue Code to suspend the running of the five-year period described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the Internal Revenue Code, that election or revocation of election to suspend the five-year period under

Section 121(d)(9) of the Internal Revenue Code shall be applicable for state purposes, a separate election or revocation of election for purposes of

Section 121(d)(9) of the Internal Revenue Code may not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5, and the federal election or revocation of election shall be binding for purposes of this part.

(2) If a taxpayer fails to make an election for federal purposes under

Section 121(d)(9) of the Internal Revenue Code to suspend the running of the five-year period described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the Internal Revenue Code, that five-year period may not be suspended under

Section 121(d)(9) of the Internal Revenue Code for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (

e) of

Section 17024.5. (

f) Section 121(d)(11) of the Internal Revenue Code, relating to property acquired from a decedent, shall not apply. (

g) The amendments made by

Section of the Tax Relief and Health Care Act of 2006 (Public Law 109-432) to

Section 121(d)(9) of the Internal Revenue Code, relating to uniformed services, foreign service, and intelligence community, shall apply to sales or exchanges that occur on or after January 1, 2010. (

h) The amendments made by subdivision (

a) of

Section of the Mortgage Forgiveness Debt Relief Act of 2007 (Public Law 110-142) to

Section of the Internal Revenue Code, relating to exclusion of gain from sale of principal residence, shall apply to sales or exchanges that occur on or after January 1, 2010.