Foreclosure Tax Relief Act of 2007

Foreclosure Tax Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income up to $50,000 of the amount attributable to a discharge of mortgage indebtedness or to a refinancing of a principal residence. Limits such tax exclusion to taxpayers with modified adjusted gross incomes of $100,000 or less ($200,000 in the case of a joint tax return).

[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3506 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 3506

To amend the Internal Revenue Code of 1986 to exclude from gross income 
certain amounts of cancellation of indebtedness income on account of a 
 foreclosure on the mortgage secured by the principal residence of the 
                               taxpayer.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 7, 2007

  Mr. Space 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 
certain amounts of cancellation of indebtedness income on account of a 
 foreclosure on the mortgage secured by the principal residence of the 
                               taxpayer.

    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 ``Foreclosure Tax Relief Act of 
2007''.

SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN FIRST 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 eligible individual, the 
                indebtedness discharged is qualified principal 
                residence indebtedness.''.
    (b) Qualified Principal Residence Indebtedness.--Section 108 of 
such Code (relating to discharge of indebtedness) is amended by adding 
at the end the following new subsection:
    ``(h) Qualified Principal Residence Indebtedness.--For purposes of 
subparagraph (E) of subsection (a)(1)--
            ``(1) Limitation.--The amount excluded under subsection 
        (a)(1)(E) with respect to any qualified principal residence 
        indebtedness shall not exceed $50,000.
            ``(2) Eligible individual.--The term `eligible individual' 
        means any individual if the modified adjusted gross income of 
        the taxpayer is not more than $100,000 ($200,000 in the case of 
        a joint return).
            ``(3) Qualified principal residence indebtedness.--
                    ``(A) In general.--The term `qualified principal 
                residence indebtedness' means any first mortgage 
                indebtedness--
                            ``(i) which was incurred by the taxpayer to 
                        acquire, construct, or substantially improve 
                        real property owned and used as the principal 
                        residence (within the meaning of section 121) 
                        of the taxpayer during periods aggregating at 
                        least 2 years during the 5-year period ending 
                        on the date that the debt is discharged, and
                            ``(ii) which was secured by such real 
                        property.
                    ``(B) Refinanced indebtedness.--Such term shall 
                include indebtedness resulting from the refinancing of 
                indebtedness under subparagraph (A), but only to the 
                extent the refinanced indebtedness does not exceed the 
                amount of the indebtedness being refinanced.
            ``(4) Modified adjusted gross income.--For purposes of 
        paragraph (2), the term `modified adjusted gross income' means 
        adjusted gross income determined--
                    ``(A) without regard to subsection (a)(1)(E) and 
                sections 199, 911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, 221, 222, and 469.
            ``(5) Basis reduction.--The basis of the principal 
        residence of the taxpayer shall be reduced by the amount 
        excluded from gross income under subsection (a)(1)(E).
            ``(6) Coordination with insolvency exclusion.--Subsection 
        (a)(1)(E) shall not apply to a discharge which occurs when the 
        taxpayer is solvent unless the taxpayer elects not to apply 
        subsection (a)(1)(B).
            ``(7) Application of subsection.--This subsection shall 
        apply to discharges in taxable years beginning in 2007 or 
        2008.''.
    (c) Conforming Amendments.--
            (1) Subparagraph (A) of section 108(a)(2) of such Code is 
        amended by striking ``and (D)'' and inserting ``(D), and (E)''.
            (2) Sections 86(b)(2)(A) and 219(g)(3)(A)(ii) of such Code 
        are each amended by inserting ``108(a)(1)(E),'' before 
        ``135,''.
            (3) Section 135(c)(4)(A) of such Code is amended by 
        inserting ``108(a)(1)(E),'' before ``137,''.
            (4) Sections 137(b)(3)(A) and 222(b)(2)(C)(i) of such Code 
        are each amended by inserting ``108(a)(1)(E),'' before 
        ``199,''.
            (5) Section 221(b)(2)(C)(i) of such Code is amended by 
        inserting ``108(a)(1)(E),'' before ``222,''.
            (6) Section 469(i)(3)(F)(ii) of such Code is amended by 
        striking ``135'' and inserting ``108(a)(1)(E), 135,''.
    (d) Effective Date.--The amendments made by this section shall 
apply to discharges in taxable years beginning after December 31, 2006.
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