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[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1394 Introduced in Senate (IS)]

110th CONGRESS
  1st Session
                                S. 1394

   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, 2007

Ms. Stabenow (for herself, Mr. Voinovich, Mr. Kerry, Mr. Levin, and Ms. 
Snowe) 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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Mortgage Cancellation Relief Act of 
2007''.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN MORTGAGE 
              OBLIGATIONS.

    (a) In General.--Paragraph (1) of section 108(a) of the Internal 
Revenue Code of 1986 (relating to exclusion from gross income), 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) in the case of an individual, the 
                indebtedness discharged is qualified residential 
                indebtedness.''.
    (b) Qualified Residential Indebtedness Shortfall.--Section 108 of 
such Code (relating to discharge of indebtedness) is amended by adding 
at the end the following new subsection:
    ``(h) Qualified Residential Indebtedness.--
            ``(1) Limitations.--The amount excluded under subparagraph 
        (E) of subsection (a)(1) with respect to any qualified 
        residential indebtedness shall not exceed the excess (if any) 
        of--
                    ``(A) the outstanding principal amount of such 
                indebtedness (immediately before the discharge), over
                    ``(B) the sum of--
                            ``(i) the amount realized from the sale of 
                        the real property securing such indebtedness 
                        reduced by the cost of such sale, plus
                            ``(ii) the outstanding principal amount of 
                        any other indebtedness secured by such 
                        property.
            ``(2) Qualified residential indebtedness.--
                    ``(A) In general.--The term `qualified residential 
                indebtedness' means indebtedness which--
                            ``(i) was incurred or assumed by the 
                        taxpayer in connection with real property used 
                        as a residence and is secured by such real 
                        property,
                            ``(ii) is incurred or assumed to acquire, 
                        construct, reconstruct, or substantially 
                        improve such real property, and
                            ``(iii) with respect to which such taxpayer 
                        makes an election to have this paragraph apply.
                    ``(B) Refinanced indebtedness.--Such term shall 
                include indebtedness resulting from the refinancing of 
                indebtedness under subparagraph (A)(ii), but only to 
                the extent the refinanced indebtedness does not exceed 
                the amount of the indebtedness being refinanced.
                    ``(C) Exceptions.--Such term shall not include 
                qualified farm indebtedness or qualified real property 
                business indebtedness.''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 108(a) of such Code is 
        amended--
                    (A) in subparagraph (A) by striking ``and (D)'' and 
                inserting ``(D), and (E)'', and
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(B) Insolvency exclusion takes precedence over 
                qualified farm exclusion; qualified real property 
                business exclusion; and qualified residential 
                indebtedness exclusion.--Subparagraphs (C), (D), and 
                (E) of paragraph (1) shall not apply to a discharge to 
                the extent the taxpayer is insolvent.''.
            (2) Paragraph (1) of section 108(b) of such Code is amended 
        by striking ``or (C)'' and inserting ``(C), or (E)''.
            (3) Subsection (d) of section 121 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(12) Special rule relating to discharge of 
        indebtedness.--The amount of gain which (but for this 
        paragraph) would be excluded from gross income under subsection 
        (a) with respect to a principal residence shall be reduced by 
        the amount excluded from gross income under section 
        108(a)(1)(E) with respect to such residence.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to discharges after the date of the enactment of this Act.
                                 <all>
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