I
107TH CONGRESS
1ST SESSION
H. R. 13
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 HOUSE OF REPRESENTATIVES
JANUARY 3, 2001
Mr. ANDREWS (for himself and Mr. FOLEY) introduced the following bill;
which was referred to the Committee on Ways and Means
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 Representa-
tives 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 2001’’.
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 exclu-
sion from gross income) is amended by striking ‘‘or’’ at
the end of both subparagraphs (A) and (C), by striking
the period at the end of subparagraph (D) and inserting
‘‘, or’’, and by inserting after subparagraph (D) the fol-
lowing new subparagraph:
‘‘(E) in the case of an individual, the in-
debtedness discharged is qualified residential in-
debtedness.’’.
(b) 
QUALIFIED
RESIDENTIAL
INDEBTEDNESS
SHORTFALL.—Section 108 of such Code (relating to dis-
charge 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 dis-
charge), over
‘‘(B) the sum of—
‘‘(i) the amount realized from the sale
of the real property securing such indebt-
edness reduced by the cost of such sale,
and
‘‘(ii) the outstanding principal amount
of any other indebtedness secured by such
property.
‘‘(2) 
QUALIFIED
RESIDENTIAL
INDEBTED-
NESS.—
‘‘(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 ac-
quire, construct, reconstruct, or substan-
tially improve such real property, and
‘‘(iii) with respect to which such tax-
payer makes an election to have this para-
graph apply.
‘‘(B) REFINANCED INDEBTEDNESS.—Such
term shall include indebtedness resulting from
the refinancing of indebtedness under subpara-
graph (A)(ii), but only to the extent the refi-
nanced 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 EXCLU-
SION; QUALIFIED
REAL
PROPERTY
BUSINESS
EXCLUSION; 
AND
QUALIFIED
RESIDENTIAL
SHORTFALL
EXCLUSION.—Subparagraphs (C),
(D), and (E) of paragraph (1) shall not apply
to a discharge to the extent the taxpayer is in-
solvent.’’.
(2) Paragraph (1) of section 108(b) of such
Code is amended by striking ‘‘or (C)’’ and inserting
‘‘(C), or (E)’’.
(3) Subsection (c) of section 121 of such Code
is amended by adding at the end the following new
paragraph:
‘‘(4) 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.
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