I 

111TH CONGRESS 

2D SESSION H. R. 4826 

To promote neighborhood stabilization by incentivizing short sales, as a preferable alternative to foreclosure, through the Internal Revenue Code 

of 1986. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 11, 2010 

Mr. FOSTER introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, 

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To promote neighborhood stabilization by incentivizing short 

sales, as a preferable alternative to foreclosure, through 

the Internal Revenue Code of 1986. 

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 ‘‘Responsible Home5 owner Relief Act of 2010’’. 


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1 SEC. 2. DEDUCTION FOR LOSS FROM SALE OF PRINCIPAL 

2 RESIDENCE. 

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter I of the Internal Revenue Code of 1986 (relating to 

5 additional itemized deductions for individuals) is amended 

6 by redesignating section 224 as section 225 and by insert7 ing after section 223 the following new section: 

8 ‘‘SEC. 224. LOSS FROM SALE OF PRINCIPAL RESIDENCE. 

9 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an 

10 individual, there shall be allowed as a deduction for the 

11 taxable year any loss recognized on the sale or exchange 

12 of property during the taxable year if, during the 5-year 

13 period ending on the date of the sale or exchange, such 

14 property has been owned and used by the taxpayer as the 

15 taxpayer’s principal residence for periods aggregating 2 

16 years or more. 

17 ‘‘(b) LIMITATIONS.— 

18 ‘‘(1) AGGREGATE LIMITATION.—The aggregate 

19 amount allowed as a deduction under subsection (a) 

20 for all taxable years shall not exceed $9,000. 

21 ‘‘(2) ANNUAL LIMITATION.— 

22 ‘‘(A) IN GENERAL.—The amount allowed 

23 to a taxpayer as a deduction under subsection 

24 (a) for a taxable year shall not exceed $3,000. 

25 ‘‘(B) CARRYFORWARD.—If the deduction 

26 allowable under subsection (a) for any taxable 


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1 year exceeds the limitation imposed by subpara2 graph (A) for the taxable year, the excess shall 

3 be carried to each of the 2 succeeding taxable 

4 years and added to the deduction allowable 

5 under subsection (a) for such succeeding year. 

6 ‘‘(3) EXCLUSION OF LOSS ALLOCATED TO NON7 QUALIFIED USE.— 

8 ‘‘(A) IN GENERAL.—Subsection (a) shall 

9 not apply to so much of the loss from the sale 

10 or exchange of property as is allocated to peri11 ods of nonqualified use. 

12 ‘‘(B) ALLOCATION.—For purposes of sub13 paragraph (A), loss shall be allocated to periods 

14 of nonqualified use based on the ratio which— 

15 ‘‘(i) the aggregate periods of non16 qualified use during the period such prop17 erty was owned by the taxpayer, bears to 

18 ‘‘(ii) the period such property was 

19 owned by the taxpayer. 

20 ‘‘(C) PERIOD OF NONQUALIFIED USE; CO21 ORDINATION WITH RECOGNITION OF GAIN AT22 TRIBUTABLE TO DEPRECIATION.—For purposes 

23 of this paragraph, rules similar to the rules of 

24 subparagraphs (C) and (D) of section 121(b)(5) 

25 shall apply. 


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1 ‘‘(4) APPLICATION TO ONLY 1 SALE.— 

2 ‘‘(A) IN GENERAL.—Subsection (a) shall 

3 not apply to more than 1 sale or exchange of 

4 a principal residence by the taxpayer. 

5 ‘‘(B) SPECIAL RULE FOR JOINT RE6 TURNS.—In the case of a joint return with re7 spect to the sale or exchange of a principal resi8 dence, if a deduction was allowable under sub9 section (a) to a spouse for a prior sale or ex10 change of a principal residence, paragraphs (1) 

11 and (2)(A) shall be applied by reducing the dol12 lar amounts therein by the deduction so allow13 able (one-half of such deduction in the case of 

14 a joint return). 

15 ‘‘(5) SALE OR EXCHANGE WITH RELATED PER16 SON.— 

17 ‘‘(A) IN GENERAL.—Subsection (a) shall 

18 not apply to any sale or exchange to a related 

19 person. 

20 ‘‘(B) RELATED PERSON.—For purposes of 

21 this subparagraph (A), a person (hereinafter in 

22 this subparagraph referred to as the ‘related 

23 person’) is related to any person if— 


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1 ‘‘(i) the related person bears a rela2 tionship to such person specified in section 

3 267(b) or section 707(b)(1), or 

4 ‘‘(ii) the related person and such per5 son are engaged in trades or business 

6 under common control (within the meaning 

7 of subsections (a) and (b) of section 52). 

8 For purposes of clause (i), in applying section 

9 267(b) or 707(b)(1), ‘10 percent’ shall be sub10 stituted for ‘50 percent’. 

11 ‘‘(c) HOME SALES PRICE MUST BE CONSISTENT

12 WITH LOCAL MARKET.—The sale or exchange of a prin13 cipal residence shall not be taken into account for pur14 poses of subsection (a) unless the taxpayer demonstrates 

15 to the satisfaction of the Secretary that the price for which 

16 such home is sold (or value received in the case of an ex17 change) is consistent with local property values of dwell18 ings of a similar size and condition at the time of such 

19 sale or exchange. 

20 ‘‘(d) APPLICABLE RULES.—For purposes of this sec21 tion, rules similar to the rules of subsection (d) of section 

22 121 shall apply, except that paragraph (6) thereof shall 

23 be applied by substituting ‘loss’ for ‘gain’. 

24 ‘‘(e) ELECTION TO HAVE SECTION NOT APPLY.— 

25 This section shall not apply to any sale or exchange with 


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1 respect to which the taxpayer elects not to have this sec2 tion apply. 

3 ‘‘(f) TERMINATION.—The section shall not apply to 

4 the sale or exchange of a principal residence after Decem5 ber 31, 2012.’’. 

6 (b) DEDUCTION ALLOWED IN COMPUTING AD7 JUSTED GROSS INCOME.—Subsection (a) of section 62 of 

8 such Code is amended by inserting before the last sentence 

9 the following new paragraph: 

10 ‘‘(22) LOSS FROM SALE OF PRINCIPAL RESI11 DENCE.—The deduction allowed by section 224.’’. 

12 (c) CONFORMING AMENDMENTS.— 

13 (1) Section 165(c) of such Code is amended by 

14 striking ‘‘and’’ at the end of paragraph (2), by strik15 ing the period at the end of paragraph (3) and in16 serting ‘‘; and’’, and by inserting after paragraph 

17 (3) the following new paragraph: 

18 ‘‘(4) to the extent provided in section 224, 

19 losses from the sale or exchange of a principal resi20 dence.’’. 

21 (2) Section 165(f) of such Code is amended by 

22 inserting ‘‘and in section 224 in the case of losses 

23 from the sale or exchange of a principal residence’’ 

24 before the period at the end. 


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1 (d) CLERICAL AMENDMENT.—The table of sections 

2 for part VII of subchapter B of chapter 1 of such Code 

3 is amended by striking the item relating to section 224 

4 and inserting the following: 

‘‘Sec. 224. Loss from sale of principal residence.’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2008. 

8 SEC. 3. WAIVER OF FANNIE MAE AND FREDDIE MAC WAIT9 ING PERIOD REQUIREMENTS AFTER SHORT 

10 SALE FOR CERTAIN MORTGAGORS. 

11 (a) IN GENERAL.—The Federal National Mortgage 

12 Association and the Federal Home Loan Mortgage Cor13 poration shall waive the applicability of any short sale 

14 waiting period requirement with respect to the purchase 

15 and any commitment to purchase, by such Association or 

16 Corporation, of a covered mortgage if the mortgagor under 

17 such covered mortgage— 

18 (1) was, at the time of the short sale of the 

19 principal dwelling of such mortgagor that was sub20 ject to the previous mortgage, current on all pay21 ments due under the mortgage satisfied by such 

22 short sale; and 

23 (2) has a credit score greater than the equiva24 lent of a FICO score of 679. 


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1 (b) DEFINITIONS.—For purposes of this section, the 

2 following definitions shall apply: 

3 (1) COVERED MORTGAGE.—The term ‘‘covered 

4 mortgage’’ means a mortgage under which the mort5 gagor is an individual who was previously the mort6 gagor under another mortgage on the principal 

7 dwelling of such mortgagor, which principal dwelling 

8 was sold in a short sale. 

9 (2) SHORT SALE.—The term ‘‘short sale’’, with 

10 respect to an individual, has the meaning given such 

11 term under section 605(a)(7)(B) of the Fair Credit 

12 Reporting Act. 

13 (3) SHORT SALE WAITING PERIOD REQUIRE14 MENT.—The term ‘‘short sale waiting period re15 quirement’’ means any underwriting or other re16 quirement of the Federal National Mortgage Asso17 ciation or the Federal Home Loan Mortgage Cor18 poration that requires, for the purchase by such As19 sociation or Corporation of a mortgage under which 

20 the mortgagor is an individual who was previously 

21 the mortgagor under another mortgage that was 

22 sold in a short sale, that any minimum period of 

23 time elapse after the occurrence of such short sale. 


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1 (c) SUNSET.—The provisions of this section shall 

2 cease to be effective on and after January 1, 2013. 

Æ 


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