II

106TH CONGRESS

2D SESSION S. 2555

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

MAY 15, 2000

Mr. KERREY (for himself and Mr. HATCH) 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 2000’’.
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1 SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN

2 FORGIVEN MORTGAGE OBLIGATIONS.

3 (a) IN GENERAL.—Paragraph (1) of section 108(a)

4 of the Internal Revenue Code of 1986 (relating to exclu5 sion from gross income) is amended by striking ‘‘or’’ at

6 the end of both subparagraphs (A) and (C), by striking

7 the period at the end of subparagraph (D) and inserting

8 ‘‘, or’’, and by inserting after subparagraph (D) the fol9 lowing new subparagraph:

10 ‘‘(E) in the case of an individual, the in11 debtedness discharged is qualified residential in12 debtedness.’’.

13 (b) QUALIFIED RESIDENTIAL INDEBTEDNESS

14 SHORTFALL.—Section 108 of such Code (relating to dis15 charge of indebtedness) is amended by adding at the end

16 the following new subsection:

17 ‘‘(h) QUALIFIED RESIDENTIAL INDEBTEDNESS.—

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

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

20 respect to any qualified residential indebtedness

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

22 ‘‘(A) the outstanding principal amount of

23 such indebtedness (immediately before the dis24 charge), over

25 ‘‘(B) the sum of—
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1 ‘‘(i) the amount realized from the sale

2 of the real property securing such indebt3 edness reduced by the cost of such sale,

4 and

5 ‘‘(ii) the outstanding principal amount

6 of any other indebtedness secured by such

7 property.

8 ‘‘(2) QUALIFIED RESIDENTIAL INDEBTED9 NESS.—

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

11 residential indebtedness’ means indebtedness

12 which—

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

14 taxpayer in connection with real property

15 used as the principal residence of the tax16 payer (within the meaning of section 121)

17 and is secured by such real property,

18 ‘‘(ii) is incurred or assumed to ac19 quire, construct, reconstruct, or substan20 tially improve such real property, and

21 ‘‘(iii) with respect to which such tax22 payer makes an election to have this para23 graph apply.

24 ‘‘(B) REFINANCED INDEBTEDNESS.—Such

25 term shall include indebtedness resulting from
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1 the refinancing of indebtedness under subpara2 graph (A)(ii), but only to the extent the refi3 nanced indebtedness does not exceed the

4 amount of the indebtedness being refinanced.

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

6 include qualified farm indebtedness or qualified

7 real property business indebtedness.’’.

8 (c) CONFORMING AMENDMENTS.—

9 (1) Paragraph (2) of section 108(a) of such

10 Code is amended—

11 (A) in subparagraph (A) by striking ‘‘and

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

13 (B) by amending subparagraph (B) to read

14 as follows:

15 ‘‘(B) INSOLVENCY EXCLUSION TAKES

16 PRECEDENCE OVER QUALIFIED FARM EXCLU17 SION; QUALIFIED REAL PROPERTY BUSINESS

18 EXCLUSION; AND QUALIFIED RESIDENTIAL

19 SHORTFALL EXCLUSION.—Subparagraphs (C),

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

21 to a discharge to the extent the taxpayer is in22 solvent.’’.

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

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

25 ‘‘(C), or (E)’’.
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1 (3) Subsection (c) of section 121 of such Code

2 is amended by adding at the end the following new

3 paragraph:

4 ‘‘(4) SPECIAL RULE RELATING TO DISCHARGE

5 OF INDEBTEDNESS.—The amount of gain which

6 (but for this paragraph) would be excluded from

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

8 principal residence shall be reduced by the amount

9 excluded from gross income under section

10 108(a)(1)(E) with respect to such residence.’’.

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

12 this section shall apply to discharges after the date of the

13 enactment of this Act.

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