In the Senate of the United States,
December 14, 2007.
Resolved, That the bill from the House of Representa-
tives (H.R. 3648) entitled ‘‘An Act to amend the Internal
Revenue Code of 1986 to exclude discharges of indebtedness
on principal residences from gross income, and for other pur-
poses.’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
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
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by inserting after subparagraph (D) the following new sub-
paragraph:
‘‘(E) the indebtedness discharged is quali-
fied principal residence indebtedness which is
discharged before January 1, 2010.’’.
(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)
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), applied by substituting ‘$2,000,000
($1,000,000’ for ‘$1,000,000 ($500,000’ in clause (ii)
thereof) with respect to the principal residence of the
taxpayer.
‘‘(3) EXCEPTION FOR CERTAIN DISCHARGES NOT
RELATED
TO
TAXPAYER’S
FINANCIAL
CONDITION.—
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Subsection (a)(1)(E) shall not apply to the discharge
of a loan if the discharge is on account of services
performed for the lender or any other factor not di-
rectly related to a decline in the value of the residence
or to the financial condition of the taxpayer.
‘‘(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.’’.
(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-
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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. EXTENSION OF TREATMENT OF MORTGAGE INSUR-
ANCE PREMIUMS AS INTEREST.
(a) 
IN
GENERAL.—Subclause 
(I) 
of 
section
163(h)(3)(E)(iv) of the Internal Revenue Code of 1986 (re-
lating to termination) is amended by striking ‘‘December
31, 2007’’ and inserting ‘‘December 31, 2010’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to amounts paid or accrued after Decem-
ber 31, 2007.
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