Mortgage Forgiveness Act: What it Means

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Real Estate Broker/Owner with Michael Mergell, RE/MAX Legends Group
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 Representatives 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 INCOME. (a) I 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 subparagraph: ‘‘(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2010.’’. (b) S N GENERAL.—Paragraph (1) of section 108(a) of the InternalPECIAL RULES RELATING TO QUALIFIED PRINCIPAL RESIDENCE I adding at the end the following new subsection: ‘‘(h) S NDEBTEDNESS.—Section 108 of such Code is amended byPECIAL RULES RELATING TO QUALIFIED PRINCIPAL RESIDENCE I ‘‘(1) B 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) Q purposes of this section, the 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) E TAXPAYER 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 taxpayer. ‘‘(4) O or in part, and only a portion of such loan is qualified principal residence indebtedness, subsection (a)(1)(E) shall apply only to so much of the amount discharged as exceeds the amount H. R. 3648—2 of the loan (as determined immediately before such discharge) which is not qualified principal residence indebtedness. ‘‘(5) P the term ‘principal residence’ has the same meaning as when used in section 121.’’. (c) C (1) Subparagraph (A) of section 108(a)(2) of such Code is amended by striking ‘‘and (D)’’ and inserting ‘‘(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) P OVER INSOLVENCY EXCLUSION UNLESS ELECTED OTHERWISE to which paragraph (1)(E) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).’’. (d) E shall apply to discharges of indebtedness on or after January 1, 2007. NDEBTEDNESS.—ASIS REDUCTION.—The amount excluded from grossUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.—ForXCEPTION FOR CERTAIN DISCHARGES NOT RELATED TO’S FINANCIAL CONDITION.—Subsection (a)(1)(E) shallRDERING RULE.—If any loan is discharged, in wholeRINCIPAL RESIDENCE.—For purposes of this subsection,OORDINATION.—RINCIPAL RESIDENCE EXCLUSION TAKES PRECEDENCE.—Paragraph (1)(B) shall not apply to a dischargeFFECTIVE DATE.—The amendments made by this section SEC. 3. EXTENSION OF TREATMENT OF MORTGAGE INSURANCE PREMIUMS AS INTEREST. (a) I the Internal Revenue Code of 1986 (relating to termination) is amended by striking ‘‘December 31, 2007’’ and inserting ‘‘December 31, 2010’’. (b) E shall apply to amounts paid or accrued after December 31, 2007. N GENERAL.—Subclause (I) of section 163(h)(3)(E)(iv) ofFFECTIVE DATE.—The amendment made by this section SEC. 4. ALTERNATIVE TESTS FOR QUALIFYING AS COOPERATIVE HOUSING CORPORATION. (a) I 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 corporation’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-stockholders for residential purposes or purposes ancillary to such residential use. ‘‘(iii) 90 percent or more of the expenditures of the corporation paid or incurred 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) E shall apply to taxable years ending after the date of the enactment of this Act. H. R. 3648—3 N GENERAL.—Subparagraph (D) of section 216(b)(1) of theFFECTIVE DATE.—The amendment made by this section SEC. 5. EXCLUSION FROM INCOME FOR BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS. (a) I the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting after section 139A the following new section: N GENERAL.—Part III of subchapter B of chapter 1 of ‘‘SEC. 139B. BENEFITS PROVIDED TO VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS. ‘‘(a) I volunteer emergency response organization, gross income shall not include— ‘‘(1) any qualified State and local tax benefit, and ‘‘(2) any qualified payment. ‘‘(b) D of a qualified volunteer emergency response organization— ‘‘(1) the deduction under 164 shall be determined with regard to any qualified State and local tax benefit, and ‘‘(2) expenses paid or incurred by the taxpayer in connection with the performance of services as such a member shall be taken into account under section 170 only to the extent such expenses exceed the amount of any qualified payment excluded from gross income under subsection (a). ‘‘(c) D ‘‘(1) Q ‘qualified state and local tax benefit’ means any reduction or rebate of a tax described in paragraph (1), (2), or (3) of section 164(a) provided by a State or political division thereof on account of services performed as a member of a qualified volunteer emergency response organization. ‘‘(2) Q ‘‘(A) I any payment (whether reimbursement or otherwise) provided by a State or political division thereof on account of the performance of services as a member of a qualified volunteer emergency response organization. ‘‘(B) A determined under subparagraph (A) for any taxable year shall not exceed $30 multiplied by the number of months during such year that the taxpayer performs such services. ‘‘(3) Q ORGANIZATION response organization’ means any volunteer organization— ‘‘(A) which is organized and operated to provide firefighting or emergency medical services for persons in the State or political subdivision, as the case may be, and ‘‘(B) which is required (by written agreement) by the State or political subdivision to furnish firefighting or emergency medical services in such State or political subdivision. ‘‘(d) T to taxable years beginning after December 31, 2010.’’. H. R. 3648—4 (b) C is amended by inserting after the item relating to section 139A the following new item: N GENERAL.—In the case of any member of a qualifiedENIAL OF DOUBLE BENEFITS.—In the case of any memberEFINITIONS.—For purposes of this section—UALIFIED STATE AND LOCAL TAX BENEFIT.—The termUALIFIED PAYMENT.—N GENERAL.—The term ‘qualified payment’ meansPPLICABLE DOLLAR LIMITATION.—The amountUALIFIED VOLUNTEER EMERGENCY RESPONSE.—The term ‘qualified volunteer emergencyERMINATION.—This section shall not apply with respectLERICAL AMENDMENT.—The table of sections for such part ‘‘Sec. 139B. Benefits provided to volunteer firefighters and emergency medical responders.’’. (c) E shall apply to taxable years beginning after December 31, 2007. FFECTIVE DATE.—The amendments made by this section SEC. 6. CLARIFICATION OF STUDENT HOUSING ELIGIBLE FOR LOW- INCOME HOUSING CREDIT. (a) I Internal Revenue Code of 1986 (relating to certain students not to disqualify unit) is amended to read as follows: ‘‘(I) single parents and their children and such parents are not dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual and such children are not dependents (as so defined) of another individual other than a parent of such children, or.’’. (b) E shall apply to— (1) housing credit amounts allocated before, on, or after the date of the enactment of this Act, and (2) buildings placed in service before, on, or after such date to the extent paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 does not apply to any building by reason of paragraph (4) thereof. N GENERAL.—Subclause (I) of section 42(i)(3)(D)(ii) of theFFECTIVE DATE.—The amendment made by this section SEC. 7. APPLICATION OF JOINT RETURN LIMITATION FOR CAPITAL GAINS EXCLUSION TO CERTAIN POST-MARRIAGE SALES OF PRINCIPAL RESIDENCES BY SURVIVING SPOUSES. (a) S of the Internal Revenue Code of 1986 (relating to limitations) is amended by adding at the end the following new paragraph: ‘‘(4) S SPOUSES an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting ‘$500,000’ for ‘$250,000’ if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death.’’. (b) E shall apply to sales or exchanges after December 31, 2007. ALE WITHIN 2 YEARS OF SPOUSE’S DEATH.—Section 121(b)PECIAL RULE FOR CERTAIN SALES BY SURVIVING.—In the case of a sale or exchange of property byFFECTIVE DATE.—The amendment made by this section SEC. 8. MODIFICATION OF PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURNS; LIMITATION ON DISCLOSURE. (a) E Internal Revenue Code of 1986 (relating to failure to file partnership returns) is amended by striking ‘‘5 months’’ and inserting ‘‘12 months’’. (b) I 6698(b) of such Code is amended by striking ‘‘$50’’ and inserting ‘‘$85’’. H. R. 3648—5 (c) L S C XTENSION OF TIME LIMITATION.—Section 6698(a) of theNCREASE IN PENALTY AMOUNT.—Paragraph (1) of sectionIMITATION ON DISCLOSURE OF TAXPAYER RETURNS TO PARTNERS,ORPORATION SHAREHOLDERS, TRUST BENEFICIARIES, AND E (1) I to disclosure to persons having material interest) is amended by adding at the end the following new paragraph: ‘‘(10) L —In the case of an inspection or disclosure under this subsection relating to the return of a partnership, S corporation, trust, or an estate, the information inspected or disclosed shall not include any supporting schedule, attachment, or list which includes the taxpayer identity information of a person other than the entity making the return or the person conducting the inspection or to whom the disclosure is made.’’. (2) E shall take effect on the date of the enactment of this Act. (d) E (a) and (b) shall apply to returns required to be filed after the date of the enactment of this Act. STATE BENEFICIARIES.—N GENERAL.—Section 6103(e) of such Code (relatingIMITATION ON CERTAIN DISCLOSURES UNDER THIS SUBSECTION.FFECTIVE DATE.—The amendment made by this subsectionFFECTIVE DATE.—The amendments made by subsections SEC. 9. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS. (a) I the Internal Revenue Code of 1986 (relating to assessable penalties) is amended by adding at the end the following new section: N GENERAL.—Part I of subchapter B of chapter 68 of ‘‘SEC. 6699. FAILURE TO FILE S CORPORATION RETURN. ‘‘(a) G section 7203 (relating to willful failure to file return, supply information, or pay tax), if any S corporation required to file a return under section 6037 for any taxable year— ‘‘(1) fails to file such return at the time prescribed therefor (determined with regard to any extension of time for filing), or ‘‘(2) files a return which fails to show the information required under section 6037, such S corporation shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such failure continues (but not to exceed 12 months), unless it is shown that such failure is due to reasonable cause. ‘‘(b) A amount determined under this subsection for any month is the product of— ‘‘(1) $85, multiplied by ‘‘(2) the number of persons who were shareholders in the S corporation during any part of the taxable year. ‘‘(c) A (a) shall be assessed against the S corporation. ‘‘(d) D of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).’’. (b) C of subchapter B of chapter 68 of such Code is amended by adding at the end the following new item: ENERAL RULE.—In addition to the penalty imposed byMOUNT PER MONTH.—For purposes of subsection (a), theSSESSMENT OF PENALTY.—The penalty imposed by subsectionEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter BLERICAL AMENDMENT.—The table of sections for part I ‘‘Sec. 6699. Failure to file S corporation return.’’. H. R. 3648—6 (c) E shall apply to returns required to be filed after the date of the enactment of this Act. FFECTIVE DATE.—The amendments made by this section SEC. 10. MODIFICATION OF REQUIRED INSTALLMENT OF CORPORATE ESTIMATED TAXES WITH RESPECT TO CERTAIN DATES. The percentage under subparagraph (B) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this Act is increased by 1.50 percentage points.Speaker of the House of Representatives. Vice President of the United States and President of the Senate.

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