H.R. 3506 – Reading Mode

110th CONGRESS

1st Session

H. R. 3506

IN THE HOUSE OF REPRESENTATIVES

September 7, 2007

Mr. Space introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to exclude from gross income certain amounts of cancellation of indebtedness income on account of a foreclosure on the mortgage secured by the principal residence of the taxpayer.

Short title

This Act may be cited as the Foreclosure Tax Relief Act of 2007.

Exclusion from gross income for certain forgiven first mortgage obligations

(a)

In general

Paragraph (1) of section 108(a) of the Internal Revenue Code of 1986 (relating to exclusion from gross income) is amended by striking or at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting , or, and by inserting after subparagraph (D) the following new subparagraph:

(E)

in the case of an eligible individual, the indebtedness discharged is qualified principal residence indebtedness.

(b)

Qualified principal residence indebtedness

Section 108 of such Code (relating to discharge of indebtedness) is amended by adding at the end the following new subsection:

(h)

Qualified principal residence indebtedness

For purposes of subparagraph (E) of subsection (a)(1)—

(1)

Limitation

The amount excluded under subsection (a)(1)(E) with respect to any qualified principal residence indebtedness shall not exceed $50,000.

(2)

Eligible individual

The term eligible individual means any individual if the modified adjusted gross income of the taxpayer is not more than $100,000 ($200,000 in the case of a joint return).

(3)

Qualified principal residence indebtedness

(A)

In general

The term qualified principal residence indebtedness means any first mortgage indebtedness—

(i)

which was incurred by the taxpayer to acquire, construct, or substantially improve real property owned and used as the principal residence (within the meaning of section 121) of the taxpayer during periods aggregating at least 2 years during the 5-year period ending on the date that the debt is discharged, and

(ii)

which was secured by such real property.

(B)

Refinanced indebtedness

Such term shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (A), but only to the extent the refinanced indebtedness does not exceed the amount of the indebtedness being refinanced.

(4)

Modified adjusted gross income

For purposes of paragraph (2), the term modified adjusted gross income means adjusted gross income determined—

(A)

without regard to subsection (a)(1)(E) and sections 199, 911, 931, and 933, and

(B)

after application of sections 86, 135, 137, 219, 221, 222, and 469.

(5)

Basis reduction

The basis of the principal residence of the taxpayer shall be reduced by the amount excluded from gross income under subsection (a)(1)(E).

(6)

Coordination with insolvency exclusion

Subsection (a)(1)(E) shall not apply to a discharge which occurs when the taxpayer is solvent unless the taxpayer elects not to apply subsection (a)(1)(B).

(7)

Application of subsection

This subsection shall apply to discharges in taxable years beginning in 2007 or 2008.

(c)

Conforming amendments

(1)

Subparagraph (A) of section 108(a)(2) of such Code is amended by striking and (D) and inserting (D), and (E).

(2)

Sections 86(b)(2)(A) and 219(g)(3)(A)(ii) of such Code are each amended by inserting 108(a)(1)(E), before 135,.

(3)

Section 135(c)(4)(A) of such Code is amended by inserting 108(a)(1)(E), before 137,.

(4)

Sections 137(b)(3)(A) and 222(b)(2)(C)(i) of such Code are each amended by inserting 108(a)(1)(E), before 199,.

(5)

Section 221(b)(2)(C)(i) of such Code is amended by inserting 108(a)(1)(E), before 222,.

(6)

Section 469(i)(3)(F)(ii) of such Code is amended by striking 135 and inserting 108(a)(1)(E), 135,.

(d)

Effective date

The amendments made by this section shall apply to discharges in taxable years beginning after December 31, 2006.