To amend the Internal Revenue Code of 1986 to provide disaster relief for homeowners.

Summary: Disaster Burden Relief Act of 2001- Amends the Internal Revenue Code to set forth special rules for homes which were destroyed as a result of a disaster in a Presidentially declared disaster area, including permitting a tax credit for certain mortgage payments.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Disaster Burden Relief Act of 
2001''.

SEC. 2. CREDIT FOR MORTGAGE PAYMENTS MADE ON DESTROYED HOME.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25A the 
following new section:

``SEC. 25B. MORTGAGE PAYMENTS MADE ON DESTROYED HOME.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to the payments made during the taxable 
year on acquisition indebtedness (as defined in section 163(h)(3)(B)) 
secured by a qualified destroyed home.
    ``(b) Qualified Destroyed Home.--For purposes of this section, the 
term `qualified destroyed home' means any residence if--
            ``(1) such residence is substantially destroyed as a result 
        of a disaster which is a Presidentially declared disaster (as 
        defined in section 1033(h)) or a disaster which is declared by 
        the chief executive officer of the State in which such 
        residence is located,
            ``(2) such residence was the principal residence (within 
        the meaning of section 121) of the taxpayer at the time of its 
        destruction,
            ``(3) because of the high risk of the occurrence of the 
        type of disaster which substantially destroyed such residence, 
        insurance covering damage resulting from such a disaster was 
        unavailable at reasonable rates, and
            ``(4) such destruction is not compensated for by insurance 
        or otherwise.
    ``(c) Special Rules.--
            ``(1) Coordination with interest deduction.--The deduction 
        which would (but for this subsection) be allowed on the 
        indebtedness referred to in subsection (a) shall be reduced by 
        the credit allowed under this section.
            ``(2) Credit only for payment due after destruction.--
        Subsection (a) shall not apply to any amount first due before 
        the date of the disaster.
            ``(3) Benefit reduced by government grants.--
                    ``(A) In general.--If any grant is provided to the 
                taxpayer under any Federal, State, or local government 
                program by reason of the destruction of the residence--
                            ``(i) subsection (b)(4) shall be applied 
                        without regard to such grant, but
                            ``(ii) the credit which would (but for this 
                        paragraph) be allowed under this section for 
                        any taxable year shall be reduced by such 
                        taxable year's ratable portion of such grant.
                    ``(B) Ratable portion.--The ratable portion of a 
                grant shall be determined by allocating such grant 
                ratably over the reasonably expected remaining period 
                that payments on the mortgage will be required to be 
                made.
    ``(d) Election Not To Have Credit Apply.--This section shall not 
apply to a taxpayer for a taxable year if the taxpayer elects not to 
have this section apply for such year.''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 25A the following new 
item:

                              ``Sec. 25B. Mortgage payments made on 
                                        destroyed home.''
    (c) Effective Date.--The amendments made by this section apply to 
with respect to disasters occurring on or after January 1, 2000.

SEC. 3. NO INCOME FROM DISCHARGE OF INDEBTEDNESS OF DESTROYED HOME.

    (a) In General.--Subsection (a) of section 108 of the Internal 
Revenue Code of 1986 (relating to income from discharge of 
indebtedness) is amended by adding at the end the following new 
paragraph:
            ``(4) Exception for homes destroyed in presidentially 
        declared disasters.--Paragraph (1) shall not apply to any 
        discharge of acquisition indebtedness (as defined in section 
        163(h)(3)(B)) secured by a qualified destroyed home (as defined 
        in section 25B(b)).''
    (b) Effective Date.--The amendment made by this section apply to 
with respect to disasters occurring on or after January 1, 2000.

SEC. 4. LOSS DEDUCTION ON DESTROYED HOME DETERMINED AS IF BASIS EQUALED 
              FAIR MARKET VALUE PRIOR TO DESTRUCTION.

    (a) In General.--Subsection (c) of section 165 of the Internal 
Revenue Code of 1986 (relating to limitation on losses of individuals) 
is amended by adding at the end the following new sentence:
``If the loss referred to in paragraph (3) is of a qualified destroyed 
home (as defined in section 25B(b)) and the taxpayer irrevocably elects 
not to claim the benefits of section 25B with respect to such home, the 
amount of the loss sustained shall be determined as if the adjusted 
basis of the home equaled its fair market value immediately before its 
destruction.''.
    (b) Effective Date.--The amendment made by this section apply to 
with respect to disasters occurring on or after January 1, 2000.

SEC. 5. LOSS ON SALE OR EXCHANGE OF PRINCIPAL RESIDENCE LOCATED IN 
              PRESIDENTIALLY DECLARED DISASTER AREA.

    (a) In General.--Subsection (c) of section 165 of the Internal 
Revenue Code of 1986 (relating to limitation on losses of individuals) 
is amended by striking ``and'' at the end of paragraph (2), by striking 
the period at the end of paragraph (3) and inserting ``; and'', and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) losses arising from the sale or exchange of the 
        principal residence (within the meaning of section 121) of the 
        taxpayer if--
                    ``(A) such residence is located in an area--
                            ``(i) which was at any time determined by 
                        the President to warrant assistance by the 
                        Federal Government under the Robert T. Stafford 
                        Disaster Relief and Emergency Assistance Act, 
                        or
                            ``(ii) which was at any time declared a 
                        disaster area by the chief executive officer of 
                        the State in which such residence is located,
                    ``(B) such residence was acquired by the taxpayer 
                on or before the date of the occurrence of the disaster 
                for which such determination or declaration was made, 
                and
                    ``(C) because of the high risk of the reoccurrence 
                of the type of disaster for which such determination or 
                declaration was made, insurance covering damage 
                resulting from such a disaster was unavailable at 
                reasonable rates.''
    (b) Limitation on Losses Not To Apply.--Subsection (b) of section 
1211 of such Code is amended by adding at the end the following new 
flush sentence:
``The preceding sentence shall not apply to a loss described in section 
165(c)(4).''
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges on or after January 1, 2000.