69–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 110–356 

MORTGAGE FORGIVENESS DEBT RELIEF ACT OF 2007 

OCTOBER 1, 2007.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. RANGEL, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

together with 

ADDITIONAL VIEWS 

[To accompany H.R. 3648] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 3648) to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross 

income, and for other purposes, having considered the same, report 

favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Mortgage Forgiveness Debt Relief Act of 2007’’. 

SEC. 2. DISCHARGES OF INDEBTEDNESS ON PRINCIPAL RESIDENCE EXCLUDED FROM GROSS 

INCOME. 

(a) IN GENERAL.—Paragraph (1) of section 108(a) of the Internal Revenue Code 

of 1986 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) the indebtedness discharged is qualified principal residence indebtedness.’’. 

(b) SPECIAL RULES RELATING TO QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.—Section 108 of such Code is amended by adding at the end the following new 

subsection: 

‘‘(h) SPECIAL RULES RELATING TO QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.— 


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‘‘(1) BASIS REDUCTION.—The amount excluded from gross income by reason of 

subsection (a)(1)(E) shall be applied to reduce (but not below zero) the basis of 

the principal residence of the taxpayer. 

‘‘(2) QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.—For purposes of this 

section, the term ‘qualified principal residence indebtedness’ means acquisition 

indebtedness (within the meaning of section 163(h)(3)(B), without regard to 

clause (ii) thereof) with respect to the principal residence of the taxpayer. 

‘‘(3) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES PERFORMED FOR

THE LENDER.—Subsection (a)(1)(E) shall not apply to the discharge of a loan if 

the discharge is on account of services performed for the lender. 

‘‘(4) ORDERING RULE.—If any loan is discharged, in whole or in part, and only 

a portion of such loan is qualified principal residence indebtedness, subsection 

(a)(1)(E) shall apply only to so much of the amount discharged as exceeds the 

amount of the loan (as determined immediately before such discharge) which is 

not qualified principal residence indebtedness. 

‘‘(5) PRINCIPAL RESIDENCE.—For purposes of this subsection, the term ‘principal residence’ has the same meaning as when used in section 121.’’. 

(c) COORDINATION.—

(1) Subparagraph (A) of section 108(a)(2) of such Code is amended by striking 

‘‘and (D)’’ and inserting ‘‘(D), and (E)’’. 

(2) Paragraph (2) of section 108(a) of such Code is amended by adding at the 

end the following new subparagraph: 

‘‘(C) PRINCIPAL RESIDENCE EXCLUSION TAKES PRECEDENCE OVER INSOLVENCY EXCLUSION UNLESS ELECTED OTHERWISE.—Paragraph (1)(B) shall not 

apply to a discharge to which paragraph (1)(E) applies unless the taxpayer 

elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to discharges of indebtedness on or after January 1, 2007. 

SEC. 3. LONG-TERM EXTENSION OF DEDUCTION FOR MORTGAGE INSURANCE PREMIUMS. 

(a) IN GENERAL.—Subparagraph (E) of section 163(h)(3) of the Internal Revenue 

Code of 1986 (relating to mortgage insurance premiums treated as interest) is 

amended by striking clauses (iii) and (iv) and inserting the following new clause: 

‘‘(iii) APPLICATION.—Clause (i) shall not apply with respect to any 

mortgage insurance contract issued before January 1, 2007, or after December 31, 2014.’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to contracts issued after December 31, 2006. 

SEC. 4. ALTERNATIVE TESTS FOR QUALIFYING AS COOPERATIVE HOUSING CORPORATION. 

(a) IN GENERAL.—Subparagraph (D) of section 216(b)(1) of the Internal Revenue 

Code of 1986 (defining cooperative housing corporation) is amended to read as follows: 

‘‘(D) meeting 1 or more of the following requirements for the taxable year 

in which the taxes and interest described in subsection (a) are paid or incurred: 

‘‘(i) 80 percent or more of the corporation’s gross income for such taxable year is derived from tenant-stockholders. 

‘‘(ii) At all times during such taxable year, 80 percent or more of the 

total square footage of the corporation’s property is used or available 

for use by the tenant-stockholders for residential purposes or purposes 

ancillary to such residential use. 

‘‘(iii) 90 percent or more of the expenditures of the corporation paid 

or incurred during such taxable year are paid or incurred for the acquisition, construction, management, maintenance, or care of the corporation’s property for the benefit of the tenant-stockholders.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable 

years ending after the date of the enactment of this Act. 

SEC. 5. GAIN FROM SALE OF PRINCIPAL RESIDENCE ALLOCATED TO NONQUALIFIED USE NOT 

EXCLUDED FROM INCOME. 

(a) IN GENERAL.—Subsection (b) of section 121 of the Internal Revenue Code of 

1986 (relating to limitations) is amended by adding at the end the following new 

paragraph: 

‘‘(4) EXCLUSION OF GAIN ALLOCATED TO NONQUALIFIED USE.—

‘‘(A) IN GENERAL.—Subsection (a) shall not apply to so much of the gain 

from the sale or exchange of property as is allocated to periods of nonqualified use. 


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‘‘(B) GAIN ALLOCATED TO PERIODS OF NONQUALIFIED USE.—For purposes 

of subparagraph (A), gain shall be allocated to periods of nonqualified use 

based on the ratio which—

‘‘(i) the aggregate periods of nonqualified use during the period such 

property was owned by the taxpayer, bears to 

‘‘(ii) the period such property was owned by the taxpayer. 

‘‘(C) PERIOD OF NONQUALIFIED USE.—For purposes of this paragraph—

‘‘(i) IN GENERAL.—The term ‘period of nonqualified use’ means any 

period (other than the portion of any period preceding January 1, 2008) 

during which the property is not used as the principal residence of the 

taxpayer or the taxpayer’s spouse or former spouse. 

‘‘(ii) EXCEPTIONS.—The term ‘period of nonqualified use’ does not include—

‘‘(I) any portion of the 5-year period described in subsection (a) 

which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse, 

‘‘(II) any period (not to exceed an aggregate period of 10 years) 

during which the taxpayer or the taxpayer’s spouse is serving on 

qualified official extended duty (as defined in subsection (d)(9)(C)) 

described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and 

‘‘(III) any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified 

by the Secretary. 

‘‘(D) COORDINATION WITH RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIATION.—For purposes of this paragraph—

‘‘(i) subparagraph (A) shall be applied after the application of subsection (d)(6), and 

‘‘(ii) subparagraph (B) shall be applied without regard to any gain to 

which subsection (d)(6) applies.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to sales 

and exchanges after December 31, 2007. 

SEC. 6. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 

Subparagraph (B) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking the percentage contained therein and inserting ‘‘116.75 percent’’. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

PURPOSE

The bill, H.R. 3648, as amended, includes provisions for housingrelated tax relief. 

SUMMARY

Effective for discharges of indebtedness on or after January 1, 

2007, the bill provides an exclusion from the gross income of a taxpayer for any discharge of indebtedness income from principal residence indebtedness. The bill extends the present-law deduction for 

private mortgage insurance to amounts paid or accrued after December 31, 2007, with respect to contracts entered into after December 31, 2006, and prior to January 1, 2015. Effective for taxable 

years ending after the date of enactment, the bill provides alternative qualification tests for cooperative housing corporations. Effective for sales or exchanges after December 31, 2007, the bill denies the present-law exclusion of gain on the sale of a principal residence related to certain periods of use other than as a taxpayer’s 

principal residence. Finally, the bill modifies the taxable year 2012 

estimated tax payments requirements for corporations with assets 

of at least $1 billion. 


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1 A debt cancellation which constitutes a gift or bequest is not treated as income to the donee 

debtor (sec. 102). 

B. BACKGROUND AND NEED FOR LEGISLATION

The recent unrest in the housing market has prompted concern 

over the tax consequences associated with discharges of indebtedness in connection with restructuring acquisition indebtedness and 

home foreclosures. The bill addresses this concern and improves 

upon housing-related tax provisions. 

C. LEGISLATIVE HISTORY

Background 

H.R. 3648 was introduced in the House of Representatives on 

September 25, 2007, and was referred to the Committee on Ways 

and Means. 

Committee action 

The Committee on Ways and Means marked up the bill on September 26, 2007, and ordered the bill, as amended, favorably reported. 

II. EXPLANATION OF THE BILL 

A. EXCLUDE DISCHARGES OF ACQUISITION INDEBTEDNESS ON

PRINCIPAL RESIDENCES FROM GROSS INCOME

(Sec. 2 of the bill and sec. 108 of the Code) 

PRESENT LAW

Gross income includes income that is realized by a debtor from 

the discharge of indebtedness, subject to certain exceptions for 

debtors in Title 11 bankruptcy cases, insolvent debtors, certain student loans, certain farm indebtedness, and certain real property 

business indebtedness (secs. 61(a)(12) and 108).1 In cases involving 

discharges of indebtedness that are excluded from gross income 

under the exceptions to the general rule, taxpayers generally reduce certain tax attributes, including basis in property, by the 

amount of the discharge of indebtedness. 

The amount of discharge of indebtedness excluded from income 

by an insolvent debtor not in a Title 11 bankruptcy case cannot exceed the amount by which the debtor is insolvent. In the case of 

a discharge in bankruptcy or where the debtor is insolvent, any reduction in basis may not exceed the excess of the aggregate bases 

of properties held by the taxpayer immediately after the discharge 

over the aggregate of the liabilities immediately after the discharge 

(sec. 1017). 

For all taxpayers, the amount of discharge of indebtedness generally is equal to the difference between the adjusted issue price of 

the debt being cancelled and the amount used to satisfy the debt. 

These rules generally apply to the exchange of an old obligation for 

a new obligation, including a modification of indebtedness that is 

treated as an exchange (a debt-for-debt exchange). 

For example, assume a taxpayer who is not in bankruptcy and is not insolvent owns a principal residence subject to a $200,000 

mortgage debt. If the creditor forecloses and the home is sold for 


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$180,000 in satisfaction of the debt, the debtor has $20,000 income 

from the discharge of indebtedness which is includible in gross income. Likewise, if the creditor restructures the loan and reduces 

the principal amount to $180,000, the debtor has $20,000 includible 

in gross income. 

REASONS FOR CHANGE

The Committee believes that where taxpayers restructure their 

acquisition debt on a principal residence or lose their principal residence in a foreclosure, that it is inappropriate to treat discharges 

of acquisition indebtedness as income. 

EXPLANATION OF PROVISION

The bill excludes from the gross income of a taxpayer any discharge of indebtedness income by reason of a discharge (in whole 

or in part) of qualified principal residence indebtedness. Qualified 

principal residence indebtedness means acquisition indebtedness 

(within the meaning of section 163(h)(3)(B) without regard to any 

dollar limitation) with respect to the taxpayer’s principal residence. 

Acquisition indebtedness with respect to a principal residence generally means indebtedness which is incurred in the acquisition, 

construction, or substantial improvement of the principal residence 

of the individual and is secured by the residence. It also includes 

refinancing of such indebtedness to the extent the amount of the 

refinancing does not exceed the amount of the refinanced indebtedness. For these purposes the term ‘‘principal residence’’ has the 

same meaning as under section 121 of the Code. 

If, immediately before the discharge, only a portion of a discharged indebtedness is qualified principal residence indebtedness, 

the exclusion applies only to so much of the amount discharged as 

exceeds the portion of the debt which is not qualified principal residence indebtedness. Thus, assume that a principal residence is secured by an indebtedness of $1 million, of which $800,000 is qualified principal residence indebtedness. If the residence is sold for 

$700,000 and $300,000 debt is discharged, then only $100,000 of 

the amount discharged may be excluded from gross income under 

this provision. 

The basis of the individual’s principal residence is reduced by the 

amount excluded from income under the bill. 

Under the bill, the exclusion does not apply to a taxpayer in a 

Title 11 case; instead the present-law exclusion applies. In the case 

of an insolvent taxpayer not in a Title 11 case, the exclusion under 

the bill applies unless the taxpayer elects to have the present-law 

exclusion apply instead. 

Under the bill, the exclusion does not apply to the discharge of 

a loan if the discharge is on account of services performed for the 

lender. 

EFFECTIVE DATE

The provision is effective for discharges of indebtedness on or 

after January 1, 2007. 


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B. EXTEND THE DEDUCTION FOR PRIVATE MORTGAGE INSURANCE

(Sec. 3 of the bill and sec. 163 of the Code) 

PRESENT LAW

In general 

Present law provides that qualified residence interest is deductible notwithstanding the general rule that personal interest is nondeductible (sec. 163(h)). 

Acquisition indebtedness and home equity indebtedness 

Qualified residence interest is interest on acquisition indebtedness and home equity indebtedness with respect to a principal and 

a second residence of the taxpayer. The maximum amount of home 

equity indebtedness is $100,000. The maximum amount of acquisition indebtedness is $1 million. Acquisition indebtedness means 

debt that is incurred in acquiring, constructing, or substantially 

improving a qualified residence of the taxpayer, and that is secured 

by the residence. Home equity indebtedness is debt (other than acquisition indebtedness) that is secured by the taxpayer’s principal 

or second residence, to the extent the aggregate amount of such 

debt does not exceed the difference between the total acquisition indebtedness with respect to the residence, and the fair market value 

of the residence. 

Private mortgage insurance 

Certain premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness on a qualified residence of the taxpayer are 

treated as interest that is qualified residence interest and thus deductible. The amount allowable as a deduction is phased out ratably by 10 percent for each $1,000 by which the taxpayer’s adjusted 

gross income exceeds $100,000 ($500 and $50,000, respectively, in 

the case of a married individual filing a separate return). Thus, the 

deduction is not allowed if the taxpayer’s adjusted gross income ex- ceeds $110,000 ($55,000 in the case of married individual filing a 

separate return). 

For this purpose, qualified mortgage insurance means mortgage 

insurance provided by the Veterans Administration, the Federal 

Housing Administration, or the Rural Housing Administration, and 

private mortgage insurance (defined in section 2 of the Homeowners Protection Act of 1998 as in effect on the date of enactment 

of the provision). 

Amounts paid for qualified mortgage insurance that are properly 

allocable to periods after the close of the taxable year are treated 

as paid in the period to which they are allocated. No deduction is 

allowed for the unamortized balance if the mortgage is paid before 

its term (except in the case of qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Administration). 

The provision does not apply with respect to any mortgage insurance contract issued before January 1, 2007. The provision terminates for any amount paid or accrued after December 31, 2007, or 

properly allocable to any period after that date. 

Reporting rules apply under the provision. 


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REASONS FOR CHANGE

The Committee believes it is appropriate to extend the presentlaw temporary provision. The Committee understands that the purpose of the provisions permitting deduction of home mortgage interest is to encourage home ownership while limiting significant 

disincentives to saving. The Committee believes that it would be 

consistent with the purpose of the provisions permitting deduction 

of home mortgage interest to permit the deduction of mortgage insurance premiums. While these premiums are not in the nature of 

interest, the Committee notes that purchase of such insurance is 

often demanded by lenders in order for home buyers to obtain financing (depending on the size of the buyer’s downpayment). The 

Committee believes that permitting deductibility of premiums for 

this type of insurance connected with home purchases will foster 

home ownership. In the case of higher income taxpayers who may 

not purchase mortgage insurance, however, the Committee believes 

the incentive of deductibility becomes unnecessary, and a phase-out 

is appropriate. It is not intended that prepayments be currently deductible, but rather, that they be deductible only in the period to 

which they relate. Reporting of payments is generally necessary to 

administer the provision. 

EXPLANATION OF PROVISION

The provision extends the deduction for private mortgage insurance to amounts paid or accrued after December 31, 2007, but only 

with respect to contracts entered into after December 31, 2006, and 

prior to January 1, 2015. 

EFFECTIVE DATE

The provision applies to contracts entered into after December 

31, 2006, and before January 1, 2015, with respect to amounts paid 

or accrued after December 31, 2007. 

C. ALTERNATIVE TESTS FOR QUALIFYING AS COOPERATIVE HOUSING

CORPORATION

(Sec. 4 of the bill and sec. 216 of the Code) 

PRESENT LAW

A tenant-stockholder in a cooperative housing corporation is entitled to deduct amounts paid or accrued to the cooperative to the extent those amounts represent the tenant-stockholder’s proportionate share of (1) real estate taxes allowable as a deduction to the 

cooperative which are paid or incurred by the cooperative on the 

cooperative’s land or buildings and (2) interest allowable as a deduction to the cooperative that is paid or incurred by the cooperative on its indebtedness contracted in the acquisition of the cooperative’s land or in the acquisition, construction, alteration, rehabilitation, or maintenance of the cooperative’s buildings. 

A cooperative housing corporation generally is a corporation (1) 

that has one class of stock, (2) each of the stockholders of which 

is entitled, solely by reason of ownership of stock in the corporation, to occupy a dwelling owned or leased by the cooperative, (3) 

no stockholder of which is entitled to receive any distribution not 


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out of earnings and profits of the cooperative, except on complete 

or partial liquidation of the cooperative, and (4) 80 percent or more 

of the gross income of which for the taxable year in which the taxes 

and interest are paid or incurred is derived from tenant-stockholders. 

REASONS FOR CHANGE

Under present law, tenant-stockholders of a cooperative housing 

corporation are allowed to deduct their proportionate shares of the 

cooperative’s deductible real estate taxes and mortgage interest 

only if the cooperative’s nonmember income is no more than 20 percent of its total gross income. To satisfy this rule, some cooperative 

housing corporations have made rentals to commercial tenants at 

below-market rates. The Committee believes that the tax rules 

should not create an incentive to charge below-market-rate rents. 

Accordingly, the Committee’s bill provides two non-income-based 

alternatives to the 80-percent requirement of present law. 

EXPLANATION OF PROVISION

The provision amends the fourth requirement listed above to provide that the requirement is satisfied if, for the taxable year in 

which the taxes and interest are paid or incurred, the corporation 

meets one of the following three requirements: (1) 80 percent or 

more of the corporation’s gross income for that taxable year is derived from tenant-stockholders (the present law requirement); (2) 

at all times during that table year 80 percent or more of the total 

square footage of the corporation’s property is used or available for 

use by the tenant-stockholders for residential purposes or purposes 

ancillary to such residential use; or (3) 90 percent or more of the 

expenditures of the corporation paid or incurred during that taxable year are paid or incurred for the acquisition, construction, 

management, maintenance, or care of the corporation’s property for 

the benefit of tenant-stockholders. 

EFFECTIVE DATE

The provision is effective for taxable years ending after the date 

of enactment. 

D. EXCLUSION OF GAIN ON SALE OF A PRINCIPAL RESIDENCE NOT

TO APPLY TO NONQUALIFIED USE

(Sec. 5 of the bill and sec. 121 of the Code) 

PRESENT LAW

In general 

Under present law, an individual taxpayer may exclude up to 

$250,000 ($500,000 if married filing a joint return) of gain realized 

on the sale or exchange of a principal residence. To be eligible for 

the exclusion, the taxpayer must have owned and used the residence as a principal residence for at least two of the five years ending on the sale or exchange. A taxpayer who fails to meet these requirements by reason of a change of place of employment, health, 

or, to the extent provided under regulations, unforeseen circumstances is able to exclude an amount equal to the fraction of 


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2The provision relating to employees of the intelligence community is effective for sales and 

exchanges before January 1, 2011. 

the $250,000 ($500,000 if married filing a joint return) that is 

equal to the fraction of the two years that the ownership and use 

requirements are met. 

Present law also contains an election relating to members of the 

uniformed services, the Foreign Service, and certain employees of 

the intelligence community.2 If the election is made, the five-year 

period ending on the date of the sale or exchange of a principal residence does not include any period up to 10 years during which the 

taxpayer or the taxpayer’s spouse is on qualified official extended 

duty. For these purposes, qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 

miles away from the taxpayer’s principal residence or under orders 

compelling residence in government furnished quarters. The election may be made with respect to only one property for a suspension period. 

The exclusion does not apply to gain to the extent the gain is attributable to depreciation allowable with respect to the rental or 

business use of a principal residence for periods after May 6, 1997. 

REASONS FOR CHANGE

The present-law exclusion of gain on principal residences has 

many beneficial effects by encouraging home ownership. The 

Committee believes that the application of present law to exclude 

gain attributable to periods of use prior to a home’s use as a principal residence is not consistent with the purpose of the presentlaw exclusion and inappropriate. The Committee believes that the 

provision limits the application of the exclusion to use as a principal residence without imposing undue computational and recordkeeping burdens on the taxpayer or the Internal Revenue Service. 

EXPLANATION OF PROVISION

Under the bill, gain from the sale or exchange of a principal residence allocated to periods of nonqualified use is not excluded from 

gross income. The amount of gain allocated to periods of nonqualified use is the amount of gain multiplied by a fraction the numerator of which is the aggregate periods of nonqualified use during the period the property was owned by the taxpayer and the denominator of which is the period the taxpayer owned the property. 

A period of nonqualified use means any period (not including any 

period before January 1, 2008) during which the property is not 

used by the taxpayer or the taxpayer’s spouse or former spouse as 

a principal residence. For purposes of determining periods of nonqualified use, (i) any period after the last date the property is used 

as the principal residence of the taxpayer or spouse (regardless of 

use during that period), and (ii) any period (not to exceed two 

years) that the taxpayer is temporarily absent by reason of a 

change in place of employment, health, or, to the extent provided 

in regulations, unforeseen circumstances, are not taken into account. The present-law election for the uniformed services, Foreign 

Service and employees of the intelligence community is unchanged. 

If any gain is attributable to post-May 6, 1997, depreciation, the 

exclusion does not apply to that amount of gain, as under present 


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law, and that gain is not taken into account in determining the 

amount of gain allocated to nonqualified use. 

These provisions may be illustrated by the following examples: 

Example 1.—Assume that an individual buys a property on January 1, 2008, for $400,000, and uses it as rental property for two 

years claiming $20,000 of depreciation deductions. On January 1, 

2010, the taxpayer converts the property to his principal residence. 

On January 1, 2012, the taxpayer moves out, and the taxpayer 

sells the property for $700,000 on January 1, 2013. As under 

present law, $20,000 gain attributable to the depreciation deductions is included in income. Of the remaining $300,000 gain, 40% 

of the gain (2 years divided by 5 years), or $120,000, is allocated 

to nonqualified use and is not eligible for the exclusion. Since the 

remaining gain of $180,000 is less than the maximum gain of 

$250,000 that may be excluded, gain of $180,000 is excluded from 

gross income. 

Example 2.—Assume that an individual buys a principal residence on January 1, 2008, for $400,000, moves out on January 1, 

2018, and on December 1, 2020 (more that two years after it was 

last used as the principal residence) sells the property for $600,000. 

The entire $200,000 gain is excluded from gross income, as under 

present law. 

EFFECTIVE DATE

The provision is effective for sales and exchanges after December 

31, 2007. 

E. MODIFICATIONS TO CORPORATE ESTIMATED TAX PAYMENTS

(Sec. 6 of the bill) 

PRESENT LAW

In general, corporations are required to make quarterly estimated tax payments of their income tax liability. For a corporation 

whose taxable year is a calendar year, these estimated tax payments must be made by April 15, June 15, September 15, and December 15. 

Under present law, in the case of a corporation with assets of at 

least $1 billion, the payments due in July, August, and September, 

2012, shall be increased to 114.75 percent of the payment otherwise due and the next required payment shall be reduced accordingly. 

REASONS FOR CHANGE

The Committee believes it is appropriate to adjust the corporate 

estimated tax payments. 

EXPLANATION OF PROVISION

The bill increases the percentage from 114.75 percent to 116.75 

percent. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 


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III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the votes of the Committee on Ways and Means in its consideration of the bill, H.R. 3648, the ‘‘Mortgage Forgiveness Debt 

Relief Act of 2007.’’

The bill, H.R. 3648, as amended, was ordered favorably reported 

by voice vote (with a quorum being present). The Committee accepted an amendment in the nature of a substitute by Chairman 

Rangel. 

IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 3648 as reported. 

The bill is estimated to have the following effects on Federal 

budget receipts for fiscal years 2007–2017: 


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B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue-reducing tax provisions involve increased tax expenditures. (See amounts in table in Part IV.A., 

above.) 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by CBO is provided: 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, September 28, 2007. 

Hon. CHARLES B. RANGEL, 

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Barbara Edwards. 

Sincerely, 

ROBERT A. SUNSHINE

(For Peter R. Orszag, Director). 

Enclosure. 

H.R. 3648—Mortgage Forgiveness Debt Relief Act of 2007 

Summary: H.R. 3648 would make several changes to tax law regarding principal residential property. The legislation would reduce 

revenues by excluding from taxation the gains on certain mortgage 

debt forgiven on principal residences, by extending the deduction 

for private mortgage insurance, and by providing a broader basis 

for an entity to qualify as a cooperative housing corporation. H.R. 

3648 would raise revenues by reducing the exclusion from capital 

gains on sales of some principal residences. H.R. 3648 would also 

shift some corporate receipts from 2013 to 2012. 

The Joint Committee on Taxation (JCT) estimates that enacting 

H.R. 3648 would decrease revenues by $179 million in 2008 and increase revenues by $151 million over the 2008–2012 period and by 

$34 million over the 2008–2017 period. The Congressional Budget 

Office estimates that enacting the bill would not affect federal 

spending. 

JCT has determined that the bill contains one private-sector 

mandate as defined in the Unfunded Mandates Reform Act 

(UMRA)—the reduction in the exclusion for capital gains on principal residences for nonqualified use. JCT also has determined that 

the bill contains no intergovernmental mandates as defined in 

UMRA. 


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Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 3648 is shown in the following table. 


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By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008– 2012 

CHANGES IN REVENUES 

Exclusion of discharge of principal residence indebtedness ........................ ¥179 ¥248 ¥223 ¥154 ¥81 ¥85 ¥90 ¥102 ¥106 ¥111 ¥885 

Extension of deduction for private mortgage insurance ............................... ¥15 ¥109 ¥142 ¥134 ¥137 ¥97 ¥83 ¥52 85 114 ¥536 

Change in tests to qualify as cooperative housing corporation ................... ¥1 ¥2 ¥2 ¥2 ¥2 ¥3 ¥3 ¥3 ¥3 ¥3 ¥9 

Principal residence exclusion not to apply for unqualified uses .................. 16 41 121 148 171 207 249 297 349 407 497 Increase in certain corporate estimated tax payments ................................. 0 0 0 0 1,084 ¥1,084 0 0 0 0 1,084 

Total changes ........................................................................................ ¥179 ¥318 ¥246 ¥142 1,035 ¥1,062 73 140 325 407 151 

Source: Joint Committee on Taxation. 


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Basis of the estimate: For this estimate, JCT assumes that H.R. 

3648 will be enacted on October 1, 2007. 

Forgiveness of mortgage debt 

H.R. 3648 would exclude from the gross income of a taxpayer any 

income by reason of discharge, either in whole or in part, of debt 

on the taxpayers’ principal residence. Such debt may include the 

initial loans to acquire, construct, or substantially improve the residence as well as any refinancing of debt to the extent the refinancing does not exceed the amount of the refinanced indebtedness. The exclusion from gross income would apply to discharges of 

indebtedness on or after January 1, 2007. JCT estimates that this 

provision would decrease revenues by $179 million in 2008, by 

$885 million over the 2008–2012 period, and by about $1.4 billion 

over the 2008–2017 period. 

Extension of deduction for private mortgage insurance 

Current law allows certain premiums paid or accrued for qualified mortgage insurance by a taxpayer in connection with financing 

of the taxpayer’s residence to be treated as interest; they are therefore deductible. This tax treatment terminates for any amount paid 

or accrued after December 31, 2007. H.R. 3648 would extend the 

deduction through December 31, 2014. JCT estimates that this provision would decrease revenues by $15 million in 2008, by $536 

million over the 2008–2012 period, and by $570 million over the 

2008–2017 period. 

Cooperative housing corporations 

Current law allows tenant-stockholders in cooperative housing 

corporations to deduct from taxable income certain amounts paid to 

the corporation that represent real estate taxes and interest on indebtedness related to the property. H.R. 3648 would expand the 

criteria that an entity can satisfy in order to qualify as a cooperative housing corporation. JCT estimates that this provision would 

decrease revenues by $1 million in 2008, by $9 million over the 

2008–2012 period, and by $22 million over the 2008–2017 period. 

Gains on sales of principal residences 

Taxpayers are currently allowed to exclude up to $250,000 

($500,000 for married couples filing jointly) of the gain realized on 

the sale of a principal residence, generally as long as the property 

was used as a principal residence for at least two of the five years 

prior to sale. The legislation would reduce the exclusion for some 

residences that were not the principal residence for all of the prior 

five years. Such time when the property was not a principal residence would not include temporary absences due to change in place 

of employment, health, or other unforeseen circumstances, but 

would include rental of the property. H.R. 3648 would be effective 

for sales and exchanges after December 31, 2007. JCT estimates 

that this provision would increase revenues by $16 million in 2008, 

by $497 million over the 2008–2012 period, and by about $2.0 billion over the 2008–2017 period. 


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Shifts in corporate estimated payments 

H.R. 3648 would shift revenues between 2012 and 2013. For corporations with at least $1 billion in assets, the bill would increase 

the portion of corporate estimated tax payments due from July 

through September of 2012. JCT estimates that this change would 

increase revenues by $1,084 million in 2012 and decrease revenues 

by $1,084 million in 2013. The estimate assumes enactment of H.R. 

3375, which was cleared by the Congress on September 25, and 

also raised the portion of estimated payments due in July through 

September of 2012. 

Intergovernmental and private-sector impact: JCT has determined that the bill contains one private-sector mandate as defined 

in the UMRA—the reduction in the exclusion for capital gains on 

principal residences for nonqualified use. JCT also has determined 

that the bill contains no intergovernmental mandates as defined in 

UMRA. 

Estimate prepared by: Barbara Edwards. 

Estimate approved by: G. Thomas Woodward, Assistant Director 

for Tax Analysis. 

D. MACROECONOMIC IMPACT ANALYSIS

In compliance with clause 3(h)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made by the 

Joint Committee on Taxation with respect to the provisions of the 

bill amending the Internal Revenue Code of 1986: the effects of the 

bill on economic activity are so small as to be incalculable within 

the context of a model of the aggregate economy. 

E. PAY-GO RULE

In compliance with clause 10 of rule XXI of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 3648, as reported: the provisions of the bill affecting revenues have the net effect of not increasing the deficit or reducing 

the surplus for either: (1) the period comprising the current fiscal 

year and the five fiscal years beginning with the fiscal year that 

ends in the following calendar year; and (2) the period comprising 

the current fiscal year and the ten fiscal years beginning with the 

fiscal year that ends in the following calendar year. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee advises that it is appropriate and timely to enact the revenue provisions included in the bill as reported. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of genVerDate Aug 31 2005 04:57 Oct 02, 2007 Jkt 069060 PO 00000 Frm 00017 Fmt 6659 Sfmt 6602 E:\HR\OC\HR356.XXX HR356

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eral performance goals and objectives for which any measure authorizes funding is required. 

C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of the rule XIII of the Rules of the 

House of Representatives (relating to Constitutional Authority), the 

Committee states that the Committee’s action in reporting this bill 

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have Power To lay and collect Taxes, Duties, Imposts 

and Excises*** ’’), and from the 16th Amendment to the Constitution. 

D. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the revenue provisions of 

the bill contain one Federal mandate on the private sector. That 

provision is the denial of the exclusion of gain on the sale of a principal residence related to nonqualified use. The Committee has determined that the revenue provisions of the bill do not impose a 

Federal intergovernmental mandate on State, local, or tribal governments. 

E. APPLICABILITY OF HOUSE RULE XXI 5(b) 

Clause 5 of rule XXI of the Rules of the House of Representatives 

provides, in part, that ‘‘A bill or joint resolution, amendment, or 

conference report carrying a Federal income tax rate increase may 

not be considered as passed or agreed to unless so determined by 

a vote of not less than three-fifths of the Members voting, a 

quorum being present.’’ The Committee has carefully reviewed the 

provisions of the bill, and states that the provisions of the bill do 

not involve any Federal income tax rate increases within the meaning of the rule. 

F. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’) requires the Joint 

Committee on Taxation (in consultation with the Internal Revenue 

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 

amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. 

The staff of the Joint Committee on Taxation has determined 

that a complexity analysis is not required under section 4022(b) of 

the IRS Reform Act because the bill contains no provisions that 

amend the Code and that have ‘‘widespread applicability’’ to individuals or small businesses. 


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G. LIMITED TAX BENEFITS

Pursuant to clause 9 of rule XXI of the Rules of the House of 

Representatives, the Ways and Means Committee has determined 

that the bill as reported contains no congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of 

that rule. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

* * * * * * * 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 

PART III—ITEMS SPECIFICALLY EXCLUDED FROM 

GROSS INCOME 

* * * * * * * 

SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS. 

(a) EXCLUSION FROM GROSS INCOME.—

(1) IN GENERAL.—Gross income does not include any amount 

which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—

(A) * * * 

* * * * * * * 

(C) the indebtedness discharged is qualified farm indebtedness, øor¿ 

(D) in the case of a taxpayer other than a C corporation, 

the indebtedness discharged is qualified real property business indebtednessø.¿, or 

(E) the indebtedness discharged is qualified principal 

residence indebtedness. 

(2) COORDINATION OF EXCLUSIONS.—

(A) TITLE 11 EXCLUSION TAKES PRECEDENCE.—Subparagraphs (B), (C), øand (D)¿ (D), and (E) of paragraph (1) 


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shall not apply to a discharge which occurs in a title 11 

case. 

* * * * * * * 

(C) PRINCIPAL RESIDENCE EXCLUSION TAKES PRECEDENCE

OVER INSOLVENCY EXCLUSION UNLESS ELECTED OTHERWISE.—Paragraph (1)(B) shall not apply to a discharge to 

which paragraph (1)(E) applies unless the taxpayer elects to 

apply paragraph (1)(B) in lieu of paragraph (1)(E). 

* * * * * * * 

(h) SPECIAL RULES RELATING TO QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.—

(1) BASIS REDUCTION.—The amount excluded from gross income by reason of subsection (a)(1)(E) shall be applied to reduce 

(but not below zero) the basis of the principal residence of the 

taxpayer. 

(2) QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.—For 

purposes of this section, the term ‘‘qualified principal residence 

indebtedness’’ means acquisition indebtedness (within the 

meaning of section 163(h)(3)(B), without regard to clause (ii) 

thereof) with respect to the principal residence of the taxpayer. 

(3) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES

PERFORMED FOR THE LENDER.—Subsection (a)(1)(E) shall not 

apply to the discharge of a loan if the discharge is on account 

of services performed for the lender. 

(4) ORDERING RULE.—If any loan is discharged, in whole or 

in part, and only a portion of such loan is qualified principal 

residence indebtedness, subsection (a)(1)(E) shall apply only to 

so much of the amount discharged as exceeds the amount of the 

loan (as determined immediately before such discharge) which 

is not qualified principal residence indebtedness. 

(5) PRINCIPAL RESIDENCE.—For purposes of this subsection, 

the term ‘‘principal residence’’ has the same meaning as when 

used in section 121. 

* * * * * * * 

SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE. 

(a) * * * 

(b) LIMITATIONS.—

(1) * * * 

* * * * * * * 

(4) EXCLUSION OF GAIN ALLOCATED TO NONQUALIFIED USE.—

(A) IN GENERAL.—Subsection (a) shall not apply to so 

much of the gain from the sale or exchange of property as 

is allocated to periods of nonqualified use. 

(B) GAIN ALLOCATED TO PERIODS OF NONQUALIFIED

USE.—For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio 

which—

(i) the aggregate periods of nonqualified use during 

the period such property was owned by the taxpayer, 

bears to 

(ii) the period such property was owned by the taxpayer. 


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(C) PERIOD OF NONQUALIFIED USE.—For purposes of this 

paragraph— (i) IN GENERAL.—The term ‘‘period of nonqualified 

use’’ means any period (other than the portion of any 

period preceding January 1, 2008) during which the 

property is not used as the principal residence of the 

taxpayer or the taxpayer’s spouse or former spouse. 

(ii) EXCEPTIONS.—The term ‘‘period of nonqualified 

use’’ does not include— (I) any portion of the 5-year period described in 

subsection (a) which is after the last date that such 

property is used as the principal residence of the 

taxpayer or the taxpayer’s spouse, 

(II) any period (not to exceed an aggregate period 

of 10 years) during which the taxpayer or the taxpayer’s spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection 

(d)(9)(A), and 

(III) any other period of temporary absence (not 

to exceed an aggregate period of 2 years) due to 

change of employment, health conditions, or such 

other unforeseen circumstances as may be specified 

by the Secretary. 

(D) COORDINATION WITH RECOGNITION OF GAIN ATTRIB- UTABLE TO DEPRECIATION.—For purposes of this paragraph—

(i) subparagraph (A) shall be applied after the application of subsection (d)(6), and 

(ii) subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies. 

* * * * * * * 

PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS 

AND CORPORATIONS 

* * * * * * * 

SEC. 163. INTEREST. 

(a) * * * 

* * * * * * * 

(h) DISALLOWANCE OF DEDUCTION FOR PERSONAL INTEREST.—

(1) * * * 

* * * * * * * 

(3) QUALIFIED RESIDENCE INTEREST.—For purposes of this 

subsection—

(A) * * * 

* * * * * * * 

(E) MORTGAGE INSURANCE PREMIUMS TREATED AS INTEREST.—

(i) * * * 

* * * * * * * 


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ø(iii) LIMITATION.—Clause (i) shall not apply with 

respect to any mortgage insurance contracts issued before January 1, 2007. 

ø(iv) TERMINATION.—Clause (i) shall not apply to 

amounts—ø(I) paid or accrued after December 31, 2007, or 

ø(II) properly allocable to any period after such 

date.¿ 

(iii) APPLICATION.—Clause (i) shall not apply with 

respect to any mortgage insurance contract issued before January 1, 2007, or after December 31, 2014. 

* * * * * * * 

PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR 

INDIVIDUALS 

* * * * * * * 

SEC 216. DEDUCTION OF TAXES, INTEREST, AND BUSINESS DEPRECIATION BY COOPERATIVE HOUSING CORPORATION TENANTSTOCKHOLDER. 

(a) * * * 

(b) DEFINITIONS.—For purposes of this section— (1) COOPERATIVE HOUSING CORPORATION.—The term ‘‘cooperative housing corporation’’ means a corporation— (A) * * * 

* * * * * * * 

ø(D) 80 percent or more of the gross income of which for 

the taxable year in which the taxes and interest described 

in subsection (a) are paid or incurred is derived from tenant-stockholders.¿ 

(D) meeting 1 or more of the following requirements for 

the taxable year in which the taxes and interest described 

in subsection (a) are paid or incurred: 

(i) 80 percent or more of the corporation’s gross income for such taxable year is derived from tenantstockholders. 

(ii) At all times during such taxable year, 80 percent 

or more of the total square footage of the corporation’s 

property is used or available for use by the tenantstockholders for residential purposes or purposes ancillary to such residential use. 

(iii) 90 percent or more of the expenditures of the corporation paid or incurred during such taxable year are 

paid or incurred for the acquisition, construction, management, maintenance, or care of the corporation’s 

property for the benefit of the tenant-stockholders. 

* * * * * * * 

SECTION 401 OF THE TAX INCREASE PREVENTION AND 

RECONCILIATION ACT OF 2005 

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 

Notwithstanding section 6655 of the Internal Revenue Code of 

1986—


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(1) in the case of a corporation with assets of not less than $1,000,000,000 (determined as of the end of the preceding taxable year)— (A) * * * 

(B) the amount of any required installment of corporate 

estimated tax which is otherwise due in July, August, or 

September of 2012 shall be ø114.75 percent¿ 116.75 percent of such amount, 

* * * * * * * 


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(24) 

VII. ADDITIONAL VIEWS 

The primary goal of the Mortgage Forgiveness Debt Relief Act is 

a necessary and compassionate step to helping individuals and 

families get out of a financial trap when they are being given phantom income. At a time when the housing market is faltering and 

some families are finding that the mortgage on their home is more 

than its current market value, mortgage companies are restructuring and writing down loans so that people can move on with 

their lives. When a mortgage company forgives all or part of a loan, 

they are required to send a Form 1099 to the IRS and to the homeowner stating the amount of debt forgiven. The debt forgiveness on 

this ‘‘phantom income’’ is currently taxable to the homeowner. It is 

often a huge shock and tremendous burden to the homeowner to 

be relieved of debt but then face a hefty tax bill from the IRS for 

that relief. 

We have confidence that the real estate market for American 

homes is fundamentally strong and that this temporary slump in 

home prices is short term. To address this short term problem 

President Bush proposed a three-year provision to allow for taxfree cancellation of indebtedness. We support actions taken by the 

Federal Reserve to lower the borrowing costs for banks. These actions have provided banks with the confidence to continue to lend 

money. Expanding the ability of the Federal Housing Administration to issue home loans is another option we think will help affected homeowners. 

We also believe that this short term problem is worthy of being 

given the ‘‘emergency’’ budget designation. This would allow this 

phantom income to remain untaxed and to make it unnecessary for 

this tax relief to be offset with permanent tax increases on other 

Americans. 

With no hearings on the concept of a permanent provision for 

tax-free cancellation of mortgage indebtedness, we do not know 

what long-term behaviors will develop in mortgage markets by the 

same brokers that have been offering 0% down mortgages, teaser 

rates, interest-only mortgages and other risky schemes to subprime borrowers. We have concerns that this permanent tax provision may create an environment where the American tax system is 

complicit in promoting ‘‘risk free’’ mortgages. 

Yet the majority believes that this is a permanent problem affecting real estate markets and that permanent tax increases are required to offset this permanent relief. 

The tax increase the majority has chosen to offset the debt-forgiveness provision is a permanent luxury tax on second homes. 

This Committee has a track record on luxury taxes, and it isn’t 

good. When the Democrats were last in the majority they imposed 

a luxury tax on ‘‘yachts’’ and claimed that only rich people would 

pay this tax. The luxury tax on ‘‘yachts’’ really ended up being a 


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25 

tax on boats. It was a disaster tax on the American boat building 

industry and on marinas all over America. The luxury tax on 

yachts killed thousands of American jobs, devastated an industry 

and then was finally repealed with sincere regret. 

The Census Bureau estimates that one in 20 households in 

America owns a second home. This tax increase is a real problem 

impacting real communities all across America that rely upon cabins, lake houses, mountain get-aways or retirement homes as a development strategy. Prior to recreation and retirement development 

strategies, some of these areas are down-right poor because there 

is no other industry to create jobs. These communities attract residents by planning good health care services for the elderly and 

with retirement and recreation minded activities as infrastructure. 

With this development strategy, there are good jobs to be had in 

these communities. 

However, the luxury tax on second homes that the majority imposes with this bill will actively discourage people from buying 

homes prior to their actual retirement. Rather than invest early in 

a retirement home and start building equity in that home, this bill 

will instead give people one more reason to spend their hardearned disposable dollars on other pursuits. Luxury taxes have 

that effect—they push behavior away from the ‘‘luxury’’ and toward 

other substitutes. The appreciation in these homes will no longer 

be ‘‘qualified’’ for purposes of the exclusion from gain on a residence so instead people will choose to do other things with their 

money. 

Again the Ways and Means Committee is acting on legislation 

with no hearings. None of the negative consequences of imposing 

a luxury tax on cabins, and lake houses and retirement homes was 

ever discussed at any hearings. We believe that this tax increase 

will drive down demand and prices for homes in retirement communities, sending into a further downward spiral the housing 

prices in these communities. The majority simply points to rich 

people and claims this is who will bear the burden of this tax increase. We respectfully disagree. 

Because there were no hearings to discuss and fine-tune this proposal we know that the manner of imposing this tax increase is disproportionately more harsh on those who have a very modest cabin 

rather than a chic second home in the Hamptons. Because a gain 

on a $10 million home in the Hamptons could very well exceed the 

$500,000 cap on the exclusion from gain during the two year residency period, Manhattan millionaires won’t be paying for this tax 

increase while the lake house owner with a $50,000 gain over 10 

years prior to retirement in that home won’t be able to take that 

gain into account after his period of residency upon retirement. 

If the majority really wants to pursue this tax hike then they 

should schedule hearings and learn the real impact on one in 20 

households. 

SAM JOHNSON. 

DAVE CAMP. 

KEVIN BRADY. 

Æ 


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