II 

112TH CONGRESS 

2D SESSION S. 2144 

To amend the Internal Revenue Code of 1986 to exclude from gross income 

of individual taxpayers discharges of indebtedness attributable to certain 

forgiven residential mortgage obligations. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 29, 2012 

Ms. STABENOW introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to exclude 

from gross income of individual taxpayers discharges of 

indebtedness attributable to certain forgiven residential 

mortgage obligations. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Mortgage Cancellation 

5 Relief Act of 2012’’. 


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1 SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN 

2 FORGIVEN MORTGAGE OBLIGATIONS. 

3 (a) IN GENERAL.—Subparagraph (E) of section 

4 108(a)(1) of the Internal Revenue Code of 1986 is amend5 ed to read as follows: 

6 ‘‘(E) in the case of an individual, the in7 debtedness discharged is qualified residential in8 debtedness.’’. 

9 (b) QUALIFIED RESIDENTIAL INDEBTEDNESS

10 SHORTFALL.—Subsection (h) of section 108 of the Inter11 nal Revenue Code of 1986 is amended to read as follows: 

12 ‘‘(h) QUALIFIED RESIDENTIAL INDEBTEDNESS.— 

13 ‘‘(1) LIMITATIONS.—The amount excluded 

14 under subparagraph (E) of subsection (a)(1) with 

15 respect to any qualified residential indebtedness 

16 shall not exceed the excess (if any) of— 

17 ‘‘(A) the outstanding principal amount of 

18 such indebtedness (immediately before the dis19 charge), over 

20 ‘‘(B) the sum of— 

21 ‘‘(i) the amount realized from the sale 

22 of the real property securing such indebt23 edness reduced by the cost of such sale, 

24 plus 


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1 ‘‘(ii) the outstanding principal amount 

2 of any other indebtedness secured by such 

3 property. 

4 ‘‘(2) QUALIFIED RESIDENTIAL INDEBTED5 NESS.— 

6 ‘‘(A) IN GENERAL.—The term ‘qualified 

7 residential indebtedness’ means indebtedness 

8 which— 

9 ‘‘(i) was incurred or assumed by the 

10 taxpayer in connection with real property 

11 used as a residence and is secured by such 

12 real property, 

13 ‘‘(ii) is incurred or assumed to ac14 quire, construct, reconstruct, or substan15 tially improve such real property, and 

16 ‘‘(iii) with respect to which such tax17 payer makes an election to have this para18 graph apply. 

19 ‘‘(B) REFINANCED INDEBTEDNESS.—Such 

20 term shall include indebtedness resulting from 

21 the refinancing of indebtedness under subpara22 graph (A)(ii), but only to the extent the refi23 nanced indebtedness does not exceed the 

24 amount of the indebtedness being refinanced. 


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1 ‘‘(C) EXCEPTIONS.—Such term shall not 

2 include qualified farm indebtedness or qualified 

3 real property business indebtedness.’’. 

4 (c) CONFORMING AMENDMENTS.— 

5 (1) Paragraph (2) of section 108(a) of the In6 ternal Revenue Code of 1986 is amended by striking 

7 subparagraphs (B) and (C) and inserting the fol8 lowing new subparagraph: 

9 ‘‘(B) INSOLVENCY EXCLUSION TAKES

10 PRECEDENCE OVER QUALIFIED FARM EXCLU11 SION; QUALIFIED REAL PROPERTY BUSINESS

12 EXCLUSION; AND QUALIFIED RESIDENTIAL IN13 DEBTEDNESS EXCLUSION.—Subparagraphs (C), 

14 (D), and (E) of paragraph (1) shall not apply 

15 to a discharge to the extent the taxpayer is in16 solvent.’’. 

17 (2) Paragraph (1) of section 108(b) of such 

18 Code is amended by striking ‘‘or (C)’’ and inserting 

19 ‘‘(C), or (E)’’. 

20 (3) Subsection (d) of section 121 of such Code 

21 is amended by adding at the end the following new 

22 paragraph: 

23 ‘‘(13) SPECIAL RULE RELATING TO DISCHARGE

24 OF INDEBTEDNESS.—The amount of gain which 

25 (but for this paragraph) would be excluded from 


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1 gross income under subsection (a) with respect to a 

2 principal residence shall be reduced by the amount 

3 excluded from gross income under section 

4 108(a)(1)(E) with respect to such residence.’’. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to discharges after December 31, 

7 2012. 

Æ 


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