discharges of indebtedness on principal residences from 
gross income, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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 
IN-
COME. 
(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 sub-
paragraph: 
‘‘(E) the indebtedness discharged is quali-
fied principal residence indebtedness.’’. 
(b) SPECIAL RULES RELATING TO QUALIFIED PRIN-
CIPAL RESIDENCE INDEBTEDNESS.—Section 108 of such 
Code is amended by adding at the end the following new 
subsection: 
‘‘(h) SPECIAL RULES RELATING TO QUALIFIED PRIN-
CIPAL RESIDENCE INDEBTEDNESS.— 
‘‘(1) BASIS REDUCTION.—The amount excluded 
from gross income by reason of subsection (a)(1)(E) 
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shall be applied to reduce (but not below zero) the 
basis of the principal residence of the taxpayer. 
‘‘(2) QUALIFIED PRINCIPAL RESIDENCE INDEBT-
EDNESS.—For purposes of this section, the term 
‘qualified principal residence indebtedness’ means ac-
quisition indebtedness (within the meaning of section 
163(h)(3)(B), without regard to clause (ii) thereof) 
with respect to the principal residence of the tax-
payer. 
‘‘(3) EXCEPTION FOR DISCHARGES ON ACCOUNT 
OF SERVICES PERFORMED FOR THE LENDER.—Sub-
section (a)(1)(E) shall not apply to the discharge of 
a loan if the discharge is on account of services per-
formed for the lender. 
‘‘(4) ORDERING
RULE.—If any loan is dis-
charged, in whole or in part, and only a portion of 
such loan is qualified principal residence indebted-
ness, 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 dis-
charge) which is not qualified principal residence in-
debtedness. 
‘‘(5) PRINCIPAL
RESIDENCE.—For purposes of 
this subsection, the term ‘principal residence’ has the 
same meaning as when used in section 121.’’. 
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(c) COORDINATION.— 
(1) Subparagraph (A) of section 108(a)(2) of 
such Code is amended by striking ‘‘and (D)’’ and in-
serting ‘‘(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 EXCLU-
SION 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 para-
graph (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 MORT-
GAGE 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: 
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‘‘(iii) APPLICATION.—Clause (i) shall 
not apply with respect to any mortgage in-
surance contract issued before January 1, 
2007, or after December 31, 2014.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to contracts issued after December 
31, 2006. 
SEC. 4. ALTERNATIVE TESTS FOR QUALIFYING AS COOPER-
ATIVE 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 fol-
lows: 
‘‘(D) meeting 1 or more of the following re-
quirements 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 corpora-
tion’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-stock-
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holders for residential purposes or purposes 
ancillary to such residential use. 
‘‘(iii) 90 percent or more of the ex-
penditures of the corporation paid or in-
curred 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 ALLO-
CATED TO NONQUALIFIED USE NOT EX-
CLUDED 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 NON-
QUALIFIED USE.— 
‘‘(A) IN GENERAL.—Subsection (a) shall not 
apply to so much of the gain from the sale or ex-
change of property as is allocated to periods of 
nonqualified use. 
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‘‘(B) GAIN ALLOCATED TO PERIODS OF NON-
QUALIFIED USE.—For purposes of subparagraph 
(A), gain shall be allocated to periods of non-
qualified use based on the ratio which— 
‘‘(i) the aggregate periods of non-
qualified use during the period such prop-
erty 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 prop-
erty 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 pe-
riod 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, 
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Union Calendar No. 220 
110TH CONGRESS 
1ST SESSION 
H. R. 3648 
[Report No. 110–356] 
A BILL 
To amend the Internal Revenue Code of 1986 to 
exclude discharges of indebtedness on principal 
residences from gross income, and for other pur-
poses. 
OCTOBER 1, 2007 
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union, 
and ordered to be printed 
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