IIB 
110TH CONGRESS 
1ST SESSION H. R. 3648 
IN THE SENATE OF THE UNITED STATES 
OCTOBER 4, 2007 
Received; read twice and referred to the Committee on Finance 
AN ACT 
To amend the Internal Revenue Code of 1986 to exclude 
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, 
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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 strik-
ing ‘‘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) 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 
PRINCIPAL 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
IN-
DEBTEDNESS.—For purposes of this section, the 
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term ‘qualified principal residence indebtedness’ 
means acquisition 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 CONDI-
TION.—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 directly related to a decline in the value of the 
residence or to the financial condition of the tax-
payer. 
‘‘(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 be-
fore such discharge) which is not qualified principal 
residence indebtedness. 
‘‘(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.—Para-
graph (1)(B) shall not apply to a discharge to 
which paragraph (1)(E) applies unless the tax-
payer elects to apply paragraph (1)(B) in lieu 
of paragraph (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 
subsection (a) shall apply to contracts issued after Decem-
ber 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 
follows: 
‘‘(D) meeting 1 or more of the following 
requirements 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 cor-
poration’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 prop-
erty is used or available for use by the ten-
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