[House Report 110-356]
[From the U.S. Government Publishing Office]



110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    110-356

======================================================================



 
              MORTGAGE FORGIVENESS DEBT RELIEF ACT OF 2007

                                _______
                                

October 1, 2007.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Rangel, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3648]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3648) to amend the Internal Revenue Code of 1986 to 
exclude discharges of indebtedness on principal residences from 
gross income, and for other purposes, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

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) 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 by inserting after subparagraph (D) the 
following new subparagraph:
                  ``(E) the indebtedness discharged is qualified 
                principal residence indebtedness.''.
  (b) Special Rules Relating to Qualified Principal 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 indebtedness.--For 
        purposes of this section, the term `qualified principal 
        residence indebtedness' means acquisition indebtedness (within 
        the meaning of section 163(h)(3)(B), without regard to clause 
        (ii) thereof) with respect to the principal residence of the 
        taxpayer.
          ``(3) Exception for discharges on account of services 
        performed for the lender.--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.
          ``(4) Ordering rule.--If any loan is discharged, in whole 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 of 
        the loan (as determined immediately before 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.''.
  (c) Coordination.--
          (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) Principal residence exclusion takes precedence 
                over insolvency exclusion 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 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 MORTGAGE 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:
                          ``(iii) Application.--Clause (i) shall not 
                        apply with respect to any mortgage insurance 
                        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 December 31, 2006.

SEC. 4. ALTERNATIVE TESTS FOR QUALIFYING AS COOPERATIVE 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 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) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 5. GAIN FROM SALE OF PRINCIPAL RESIDENCE ALLOCATED TO NONQUALIFIED 
                    USE NOT EXCLUDED FROM INCOME.

  (a) In General.--Subsection (b) of section 121 of the Internal 
Revenue Code of 1986 (relating to limitations) is amended by adding at 
the end the following new paragraph:
          ``(4) Exclusion of gain allocated to nonqualified use.--
                  ``(A) In general.--Subsection (a) shall not apply to 
                so much of the gain from the sale or exchange of 
                property as is allocated to periods of nonqualified 
                use.
                  ``(B) Gain allocated to periods of nonqualified 
                use.--For purposes of subparagraph (A), gain shall be 
                allocated to periods of nonqualified use based on the 
                ratio which--
                          ``(i) the aggregate periods of nonqualified 
                        use during the period such property was owned 
                        by the taxpayer, bears to
                          ``(ii) the period such property was owned by 
                        the taxpayer.
                  ``(C) Period of nonqualified use.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `period of 
                        nonqualified use' means any period (other than 
                        the portion of any period preceding January 1, 
                        2008) during which the property is not used as 
                        the principal residence of the taxpayer or the 
                        taxpayer's spouse or former spouse.
                          ``(ii) Exceptions.--The term `period of 
                        nonqualified use' does not include--
                                  ``(I) any portion of the 5-year 
                                period described in subsection (a) 
                                which is after the last date that such 
                                property is used as the principal 
                                residence of the taxpayer or the 
                                taxpayer's spouse,
                                  ``(II) any period (not to exceed an 
                                aggregate period of 10 years) during 
                                which the taxpayer or the taxpayer's 
                                spouse is serving on qualified official 
                                extended duty (as defined in subsection 
                                (d)(9)(C)) described in clause (i), 
                                (ii), or (iii) of subsection (d)(9)(A), 
                                and
                                  ``(III) any other period of temporary 
                                absence (not to exceed an aggregate 
                                period of 2 years) due to change of 
                                employment, health conditions, or such 
                                other unforeseen circumstances as may 
                                be specified by the Secretary.
                  ``(D) Coordination with recognition of gain 
                attributable to depreciation.--For purposes of this 
                paragraph--
                          ``(i) subparagraph (A) shall be applied after 
                        the application of subsection (d)(6), and
                          ``(ii) subparagraph (B) shall be applied 
                        without regard to any gain to which subsection 
                        (d)(6) applies.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to sales and exchanges after December 31, 2007.

SEC. 6. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Subparagraph (B) of section 401(1) of the Tax Increase Prevention and 
Reconciliation Act of 2005 is amended by striking the percentage 
contained therein and inserting ``116.75 percent''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                PURPOSE

    The bill, H.R. 3648, as amended, includes provisions for 
housing-related tax relief.

                                SUMMARY

    Effective for discharges of indebtedness on or after 
January 1, 2007, the bill provides an exclusion from the gross 
income of a taxpayer for any discharge of indebtedness income 
from principal residence indebtedness. The bill extends the 
present-law deduction for private mortgage insurance to amounts 
paid or accrued after December 31, 2007, with respect to 
contracts entered into after December 31, 2006, and prior to 
January 1, 2015. Effective for taxable years ending after the 
date of enactment, the bill provides alternative qualification 
tests for cooperative housing corporations. Effective for sales 
or exchanges after December 31, 2007, the bill denies the 
present-law exclusion of gain on the sale of a principal 
residence related to certain periods of use other than as a 
taxpayer's principal residence. Finally, the bill modifies the 
taxable year 2012 estimated tax payments requirements for 
corporations with assets of at least $1 billion.

                 B. Background and Need for Legislation

    The recent unrest in the housing market has prompted 
concern over the tax consequences associated with discharges of 
indebtedness in connection with restructuring acquisition 
indebtedness and home foreclosures. The bill addresses this 
concern and improves upon housing-related tax provisions.

                         C. Legislative History


Background

    H.R. 3648 was introduced in the House of Representatives on 
September 25, 2007, and was referred to the Committee on Ways 
and Means.

Committee action

    The Committee on Ways and Means marked up the bill on 
September 26, 2007, and ordered the bill, as amended, favorably 
reported.

                      II. EXPLANATION OF THE BILL


    A. Exclude Discharges of Acquisition Indebtedness on Principal 
                      Residences From Gross Income


(Sec. 2 of the bill and sec. 108 of the Code)

                              PRESENT LAW

    Gross income includes income that is realized by a debtor 
from the discharge of indebtedness, subject to certain 
exceptions for debtors in Title 11 bankruptcy cases, insolvent 
debtors, certain student loans, certain farm indebtedness, and 
certain real property business indebtedness (secs. 61(a)(12) 
and 108).\1\ In cases involving discharges of indebtedness that 
are excluded from gross income under the exceptions to the 
general rule, taxpayers generally reduce certain tax 
attributes, including basis in property, by the amount of the 
discharge of indebtedness.
---------------------------------------------------------------------------
    \1\A debt cancellation which constitutes a gift or bequest is not 
treated as income to the donee debtor (sec. 102).
---------------------------------------------------------------------------
    The amount of discharge of indebtedness excluded from 
income by an insolvent debtor not in a Title 11 bankruptcy case 
cannot exceed the amount by which the debtor is insolvent. In 
the case of a discharge in bankruptcy or where the debtor is 
insolvent, any reduction in basis may not exceed the excess of 
the aggregate bases of properties held by the taxpayer 
immediately after the discharge over the aggregate of the 
liabilities immediately after the discharge (sec. 1017).
    For all taxpayers, the amount of discharge of indebtedness 
generally is equal to the difference between the adjusted issue 
price of the debt being cancelled and the amount used to 
satisfy the debt. These rules generally apply to the exchange 
of an old obligation for a new obligation, including a 
modification of indebtedness that is treated as an exchange (a 
debt-for-debt exchange).
    For example, assume a taxpayer who is not in bankruptcy and 
is not insolvent owns a principal residence subject to a 
$200,000 mortgage debt. If the creditor forecloses and the home 
is sold for $180,000 in satisfaction of the debt, the debtor 
has $20,000 income from the discharge of indebtedness which is 
includible in gross income. Likewise, if the creditor 
restructures the loan and reduces the principal amount to 
$180,000, the debtor has $20,000 includible in gross income.

                           REASONS FOR CHANGE

    The Committee believes that where taxpayers restructure 
their acquisition debt on a principal residence or lose their 
principal residence in a foreclosure, that it is inappropriate 
to treat discharges of acquisition indebtedness as income.

                        EXPLANATION OF PROVISION

    The bill excludes from the gross income of a taxpayer any 
discharge of indebtedness income by reason of a discharge (in 
whole or in part) of qualified principal residence 
indebtedness. Qualified principal residence indebtedness means 
acquisition indebtedness (within the meaning of section 
163(h)(3)(B) without regard to any dollar limitation) with 
respect to the taxpayer's principal residence. Acquisition 
indebtedness with respect to a principal residence generally 
means indebtedness which is incurred in the acquisition, 
construction, or substantial improvement of the principal 
residence of the individual and is secured by the residence. It 
also includes refinancing of such indebtedness to the extent 
the amount of the refinancing does not exceed the amount of the 
refinanced indebtedness. For these purposes the term 
``principal residence'' has the same meaning as under section 
121 of the Code.
    If, immediately before the discharge, only a portion of a 
discharged indebtedness is qualified principal residence 
indebtedness, the exclusion applies only to so much of the 
amount discharged as exceeds the portion of the debt which is 
not qualified principal residence indebtedness. Thus, assume 
that a principal residence is secured by an indebtedness of $1 
million, of which $800,000 is qualified principal residence 
indebtedness. If the residence is sold for $700,000 and 
$300,000 debt is discharged, then only $100,000 of the amount 
discharged may be excluded from gross income under this 
provision.
    The basis of the individual's principal residence is 
reduced by the amount excluded from income under the bill.
    Under the bill, the exclusion does not apply to a taxpayer 
in a Title 11 case; instead the present-law exclusion applies. 
In the case of an insolvent taxpayer not in a Title 11 case, 
the exclusion under the bill applies unless the taxpayer elects 
to have the present-law exclusion apply instead.
    Under the bill, the exclusion does not apply to the 
discharge of a loan if the discharge is on account of services 
performed for the lender.

                             EFFECTIVE DATE

    The provision is effective for discharges of indebtedness 
on or after January 1, 2007.

         B. Extend the Deduction for Private Mortgage Insurance


(Sec. 3 of the bill and sec. 163 of the Code)

                              PRESENT LAW

In general

    Present law provides that qualified residence interest is 
deductible notwithstanding the general rule that personal 
interest is nondeductible (sec. 163(h)).

Acquisition indebtedness and home equity indebtedness

    Qualified residence interest is interest on acquisition 
indebtedness and home equity indebtedness with respect to a 
principal and a second residence of the taxpayer. The maximum 
amount of home equity indebtedness is $100,000. The maximum 
amount of acquisition indebtedness is $1 million. Acquisition 
indebtedness means debt that is incurred in acquiring, 
constructing, or substantially improving a qualified residence 
of the taxpayer, and that is secured by the residence. Home 
equity indebtedness is debt (other than acquisition 
indebtedness) that is secured by the taxpayer's principal or 
second residence, to the extent the aggregate amount of such 
debt does not exceed the difference between the total 
acquisition indebtedness with respect to the residence, and the 
fair market value of the residence.

Private mortgage insurance

    Certain premiums paid or accrued for qualified mortgage 
insurance by a taxpayer during the taxable year in connection 
with acquisition indebtedness on a qualified residence of the 
taxpayer are treated as interest that is qualified residence 
interest and thus deductible. The amount allowable as a 
deduction is phased out ratably by 10 percent for each $1,000 
by which the taxpayer's adjusted gross income exceeds $100,000 
($500 and $50,000, respectively, in the case of a married 
individual filing a separate return). Thus, the deduction is 
not allowed if the taxpayer's adjusted gross income exceeds 
$110,000 ($55,000 in the case of married individual filing a 
separate return).
    For this purpose, qualified mortgage insurance means 
mortgage insurance provided by the Veterans Administration, the 
Federal Housing Administration, or the Rural Housing 
Administration, and private mortgage insurance (defined in 
section 2 of the Homeowners Protection Act of 1998 as in effect 
on the date of enactment of the provision).
    Amounts paid for qualified mortgage insurance that are 
properly allocable to periods after the close of the taxable 
year are treated as paid in the period to which they are 
allocated. No deduction is allowed for the unamortized balance 
if the mortgage is paid before its term (except in the case of 
qualified mortgage insurance provided by the Department of 
Veterans Affairs or Rural Housing Administration).
    The provision does not apply with respect to any mortgage 
insurance contract issued before January 1, 2007. The provision 
terminates for any amount paid or accrued after December 31, 
2007, or properly allocable to any period after that date.
    Reporting rules apply under the provision.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
present-law temporary provision. The Committee understands that 
the purpose of the provisions permitting deduction of home 
mortgage interest is to encourage home ownership while limiting 
significant disincentives to saving. The Committee believes 
that it would be consistent with the purpose of the provisions 
permitting deduction of home mortgage interest to permit the 
deduction of mortgage insurance premiums. While these premiums 
are not in the nature of interest, the Committee notes that 
purchase of such insurance is often demanded by lenders in 
order for home buyers to obtain financing (depending on the 
size of the buyer's downpayment). The Committee believes that 
permitting deductibility of premiums for this type of insurance 
connected with home purchases will foster home ownership. In 
the case of higher income taxpayers who may not purchase 
mortgage insurance, however, the Committee believes the 
incentive of deductibility becomes unnecessary, and a phase-out 
is appropriate. It is not intended that prepayments be 
currently deductible, but rather, that they be deductible only 
in the period to which they relate. Reporting of payments is 
generally necessary to administer the provision.

                        EXPLANATION OF PROVISION

    The provision extends the deduction for private mortgage 
insurance to amounts paid or accrued after December 31, 2007, 
but only with respect to contracts entered into after December 
31, 2006, and prior to January 1, 2015.

                             EFFECTIVE DATE

    The provision applies to contracts entered into after 
December 31, 2006, and before January 1, 2015, with respect to 
amounts paid or accrued after December 31, 2007.

 C. Alternative Tests for Qualifying as Cooperative Housing Corporation


(Sec. 4 of the bill and sec. 216 of the Code)

                              PRESENT LAW

    A tenant-stockholder in a cooperative housing corporation 
is entitled to deduct amounts paid or accrued to the 
cooperative to the extent those amounts represent the tenant-
stockholder's proportionate share of (1) real estate taxes 
allowable as a deduction to the cooperative which are paid or 
incurred by the cooperative on the cooperative's land or 
buildings and (2) interest allowable as a deduction to the 
cooperative that is paid or incurred by the cooperative on its 
indebtedness contracted in the acquisition of the cooperative's 
land or in the acquisition, construction, alteration, 
rehabilitation, or maintenance of the cooperative's buildings.
    A cooperative housing corporation generally is a 
corporation (1) that has one class of stock, (2) each of the 
stockholders of which is entitled, solely by reason of 
ownership of stock in the corporation, to occupy a dwelling 
owned or leased by the cooperative, (3) no stockholder of which 
is entitled to receive any distribution not out of earnings and 
profits of the cooperative, except on complete or partial 
liquidation of the cooperative, and (4) 80 percent or more of 
the gross income of which for the taxable year in which the 
taxes and interest are paid or incurred is derived from tenant-
stockholders.

                           REASONS FOR CHANGE

    Under present law, tenant-stockholders of a cooperative 
housing corporation are allowed to deduct their proportionate 
shares of the cooperative's deductible real estate taxes and 
mortgage interest only if the cooperative's nonmember income is 
no more than 20 percent of its total gross income. To satisfy 
this rule, some cooperative housing corporations have made 
rentals to commercial tenants at below-market rates. The 
Committee believes that the tax rules should not create an 
incentive to charge below-market-rate rents. Accordingly, the 
Committee's bill provides two non-income-based alternatives to 
the 80-percent requirement of present law.

                        EXPLANATION OF PROVISION

    The provision amends the fourth requirement listed above to 
provide that the requirement is satisfied if, for the taxable 
year in which the taxes and interest are paid or incurred, the 
corporation meets one of the following three requirements: (1) 
80 percent or more of the corporation's gross income for that 
taxable year is derived from tenant-stockholders (the present 
law requirement); (2) at all times during that table 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; or (3) 90 percent or more of 
the expenditures of the corporation paid or incurred during 
that taxable year are paid or incurred for the acquisition, 
construction, management, maintenance, or care of the 
corporation's property for the benefit of tenant-stockholders.

                             EFFECTIVE DATE

    The provision is effective for taxable years ending after 
the date of enactment.

 D. Exclusion of Gain on Sale of a Principal Residence Not To Apply to 
                            Nonqualified Use


(Sec. 5 of the bill and sec. 121 of the Code)

                              PRESENT LAW

In general

    Under present law, an individual taxpayer may exclude up to 
$250,000 ($500,000 if married filing a joint return) of gain 
realized on the sale or exchange of a principal residence. To 
be eligible for the exclusion, the taxpayer must have owned and 
used the residence as a principal residence for at least two of 
the five years ending on the sale or exchange. A taxpayer who 
fails to meet these requirements by reason of a change of place 
of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met.
    Present law also contains an election relating to members 
of the uniformed services, the Foreign Service, and certain 
employees of the intelligence community.\2\ If the election is 
made, the five-year period ending on the date of the sale or 
exchange of a principal residence does not include any period 
up to 10 years during which the taxpayer or the taxpayer's 
spouse is on qualified official extended duty. For these 
purposes, qualified official extended duty is any period of 
extended duty while serving at a place of duty at least 50 
miles away from the taxpayer's principal residence or under 
orders compelling residence in government furnished quarters. 
The election may be made with respect to only one property for 
a suspension period.
---------------------------------------------------------------------------
    \2\The provision relating to employees of the intelligence 
community is effective for sales and exchanges before January 1, 2011.
---------------------------------------------------------------------------
    The exclusion does not apply to gain to the extent the gain 
is attributable to depreciation allowable with respect to the 
rental or business use of a principal residence for periods 
after May 6, 1997.

                           REASONS FOR CHANGE

    The present-law exclusion of gain on principal residences 
has many beneficial effects by encouraging home ownership. The 
Committee believes that the application of present law to 
exclude gain attributable to periods of use prior to a home's 
use as a principal residence is not consistent with the purpose 
of the present-law exclusion and inappropriate. The Committee 
believes that the provision limits the application of the 
exclusion to use as a principal residence without imposing 
undue computational and record-keeping burdens on the taxpayer 
or the Internal Revenue Service.

                        EXPLANATION OF PROVISION

    Under the bill, gain from the sale or exchange of a 
principal residence allocated to periods of nonqualified use is 
not excluded from gross income. The amount of gain allocated to 
periods of nonqualified use is the amount of gain multiplied by 
a fraction the numerator of which is the aggregate periods of 
nonqualified use during the period the property was owned by 
the taxpayer and the denominator of which is the period the 
taxpayer owned the property.
    A period of nonqualified use means any period (not 
including any period before January 1, 2008) during which the 
property is not used by the taxpayer or the taxpayer's spouse 
or former spouse as a principal residence. For purposes of 
determining periods of nonqualified use, (i) any period after 
the last date the property is used as the principal residence 
of the taxpayer or spouse (regardless of use during that 
period), and (ii) any period (not to exceed two years) that the 
taxpayer is temporarily absent by reason of a change in place 
of employment, health, or, to the extent provided in 
regulations, unforeseen circumstances, are not taken into 
account. The present-law election for the uniformed services, 
Foreign Service and employees of the intelligence community is 
unchanged.
    If any gain is attributable to post-May 6, 1997, 
depreciation, the exclusion does not apply to that amount of 
gain, as under present law, and that gain is not taken into 
account in determining the amount of gain allocated to 
nonqualified use.
    These provisions may be illustrated by the following 
examples:
    Example 1.--Assume that an individual buys a property on 
January 1, 2008, for $400,000, and uses it as rental property 
for two years claiming $20,000 of depreciation deductions. On 
January 1, 2010, the taxpayer converts the property to his 
principal residence. On January 1, 2012, the taxpayer moves 
out, and the taxpayer sells the property for $700,000 on 
January 1, 2013. As under present law, $20,000 gain 
attributable to the depreciation deductions is included in 
income. Of the remaining $300,000 gain, 40% of the gain (2 
years divided by 5 years), or $120,000, is allocated to 
nonqualified use and is not eligible for the exclusion. Since 
the remaining gain of $180,000 is less than the maximum gain of 
$250,000 that may be excluded, gain of $180,000 is excluded 
from gross income.
    Example 2.--Assume that an individual buys a principal 
residence on January 1, 2008, for $400,000, moves out on 
January 1, 2018, and on December 1, 2020 (more that two years 
after it was last used as the principal residence) sells the 
property for $600,000. The entire $200,000 gain is excluded 
from gross income, as under present law.

                             EFFECTIVE DATE

    The provision is effective for sales and exchanges after 
December 31, 2007.

          E. Modifications to Corporate Estimated Tax Payments


(Sec. 6 of the bill)

                              PRESENT LAW

    In general, corporations are required to make quarterly 
estimated tax payments of their income tax liability. For a 
corporation whose taxable year is a calendar year, these 
estimated tax payments must be made by April 15, June 15, 
September 15, and December 15.
    Under present law, in the case of a corporation with assets 
of at least $1 billion, the payments due in July, August, and 
September, 2012, shall be increased to 114.75 percent of the 
payment otherwise due and the next required payment shall be 
reduced accordingly.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to adjust the 
corporate estimated tax payments.

                        EXPLANATION OF PROVISION

    The bill increases the percentage from 114.75 percent to 
116.75 percent.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3648, the ``Mortgage 
Forgiveness Debt Relief Act of 2007.''
    The bill, H.R. 3648, as amended, was ordered favorably 
reported by voice vote (with a quorum being present). The 
Committee accepted an amendment in the nature of a substitute 
by Chairman Rangel.

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 3648 as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2007-2017:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 28, 2007.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3648, the Mortgage 
Forgiveness Debt Relief Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Barbara 
Edwards.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter R. Orszag, Director).
    Enclosure.

H.R. 3648--Mortgage Forgiveness Debt Relief Act of 2007

    Summary: H.R. 3648 would make several changes to tax law 
regarding principal residential property. The legislation would 
reduce revenues by excluding from taxation the gains on certain 
mortgage debt forgiven on principal residences, by extending 
the deduction for private mortgage insurance, and by providing 
a broader basis for an entity to qualify as a cooperative 
housing corporation. H.R. 3648 would raise revenues by reducing 
the exclusion from capital gains on sales of some principal 
residences. H.R. 3648 would also shift some corporate receipts 
from 2013 to 2012.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 3648 would decrease revenues by $179 million in 
2008 and increase revenues by $151 million over the 2008-2012 
period and by $34 million over the 2008-2017 period. The 
Congressional Budget Office estimates that enacting the bill 
would not affect federal spending.
    JCT has determined that the bill contains one private-
sector mandate as defined in the Unfunded Mandates Reform Act 
(UMRA)--the reduction in the exclusion for capital gains on 
principal residences for nonqualified use. JCT also has 
determined that the bill contains no intergovernmental mandates 
as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3648 is shown in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        By fiscal year, in millions of dollars--
                               -------------------------------------------------------------------------------------------------------------------------
                                  2008      2009      2010      2011      2012      2013      2014      2015      2016      2017    2008-2012  2008-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Exclusion of discharge of           -179      -248      -223      -154       -81       -85       -90      -102      -106      -111       -885     -1,379
 principal residence
 indebtedness.................
Extension of deduction for           -15      -109      -142      -134      -137       -97       -83       -52        85       114       -536       -570
 private mortgage insurance...
Change in tests to qualify as         -1        -2        -2        -2        -2        -3        -3        -3        -3        -3         -9        -22
 cooperative housing
 corporation..................
Principal residence exclusion         16        41       121       148       171       207       249       297       349       407        497      2,005
 not to apply for unqualified
 uses.........................
Increase in certain corporate          0         0         0         0     1,084    -1,084         0         0         0         0      1,084          0
 estimated tax payments.......
                               -------------------------------------------------------------------------------------------------------------------------
    Total changes.............      -179      -318      -246      -142     1,035    -1,062        73       140       325       407        151        34
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.

    Basis of the estimate: For this estimate, JCT assumes that 
H.R. 3648 will be enacted on October 1, 2007.

Forgiveness of mortgage debt

    H.R. 3648 would exclude from the gross income of a taxpayer 
any income by reason of discharge, either in whole or in part, 
of debt on the taxpayers' principal residence. Such debt may 
include the initial loans to acquire, construct, or 
substantially improve the residence as well as any refinancing 
of debt to the extent the refinancing does not exceed the 
amount of the refinanced indebtedness. The exclusion from gross 
income would apply to discharges of indebtedness on or after 
January 1, 2007. JCT estimates that this provision would 
decrease revenues by $179 million in 2008, by $885 million over 
the 2008-2012 period, and by about $1.4 billion over the 2008-
2017 period.

Extension of deduction for private mortgage insurance

    Current law allows certain premiums paid or accrued for 
qualified mortgage insurance by a taxpayer in connection with 
financing of the taxpayer's residence to be treated as 
interest; they are therefore deductible. This tax treatment 
terminates for any amount paid or accrued after December 31, 
2007. H.R. 3648 would extend the deduction through December 31, 
2014. JCT estimates that this provision would decrease revenues 
by $15 million in 2008, by $536 million over the 2008-2012 
period, and by $570 million over the 2008-2017 period.

Cooperative housing corporations

    Current law allows tenant-stockholders in cooperative 
housing corporations to deduct from taxable income certain 
amounts paid to the corporation that represent real estate 
taxes and interest on indebtedness related to the property. 
H.R. 3648 would expand the criteria that an entity can satisfy 
in order to qualify as a cooperative housing corporation. JCT 
estimates that this provision would decrease revenues by $1 
million in 2008, by $9 million over the 2008-2012 period, and 
by $22 million over the 2008-2017 period.

Gains on sales of principal residences

    Taxpayers are currently allowed to exclude up to $250,000 
($500,000 for married couples filing jointly) of the gain 
realized on the sale of a principal residence, generally as 
long as the property was used as a principal residence for at 
least two of the five years prior to sale. The legislation 
would reduce the exclusion for some residences that were not 
the principal residence for all of the prior five years. Such 
time when the property was not a principal residence would not 
include temporary absences due to change in place of 
employment, health, or other unforeseen circumstances, but 
would include rental of the property. H.R. 3648 would be 
effective for sales and exchanges after December 31, 2007. JCT 
estimates that this provision would increase revenues by $16 
million in 2008, by $497 million over the 2008-2012 period, and 
by about $2.0 billion over the 2008-2017 period.

Shifts in corporate estimated payments

    H.R. 3648 would shift revenues between 2012 and 2013. For 
corporations with at least $1 billion in assets, the bill would 
increase the portion of corporate estimated tax payments due 
from July through September of 2012. JCT estimates that this 
change would increase revenues by $1,084 million in 2012 and 
decrease revenues by $1,084 million in 2013. The estimate 
assumes enactment of H.R. 3375, which was cleared by the 
Congress on September 25, and also raised the portion of 
estimated payments due in July through September of 2012.
    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains one private-sector mandate as 
defined in the UMRA--the reduction in the exclusion for capital 
gains on principal residences for nonqualified use. JCT also 
has determined that the bill contains no intergovernmental 
mandates as defined in UMRA.
    Estimate prepared by: Barbara Edwards.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

                             E. PAY-GO Rule

    In compliance with clause 10 of rule XXI of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the revenue provisions 
of the bill, H.R. 3648, as reported: the provisions of the bill 
affecting revenues have the net effect of not increasing the 
deficit or reducing the surplus for either: (1) the period 
comprising the current fiscal year and the five fiscal years 
beginning with the fiscal year that ends in the following 
calendar year; and (2) the period comprising the current fiscal 
year and the ten fiscal years beginning with the fiscal year 
that ends in the following calendar year.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it is appropriate and timely to 
enact the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill contain one Federal mandate on the private sector. 
That provision is the denial of the exclusion of gain on the 
sale of a principal residence related to nonqualified use. The 
Committee has determined that the revenue provisions of the 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                E. Applicability of House Rule XXI 5(b)

    Clause 5 of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                        G. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that rule.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

  (a) Exclusion from Gross Income.--
          (1) In general.--Gross income does not include any 
        amount which (but for this subsection) would be 
        includible in gross income by reason of the discharge 
        (in whole or in part) of indebtedness of the taxpayer 
        if--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) the indebtedness discharged is qualified 
                farm indebtedness, [or]
                  (D) in the case of a taxpayer other than a C 
                corporation, the indebtedness discharged is 
                qualified real property business 
                indebtedness[.], or
                  (E) the indebtedness discharged is qualified 
                principal residence indebtedness.
          (2) Coordination of exclusions.--
                  (A) Title 11 exclusion takes precedence.--
                Subparagraphs (B), (C), [and (D)] (D), and (E) 
                of paragraph (1) shall not apply to a discharge 
                which occurs in a title 11 case.

           *       *       *       *       *       *       *

                  (C) Principal residence exclusion takes 
                precedence over insolvency exclusion 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 paragraph (1)(E).

           *       *       *       *       *       *       *

  (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 indebtedness.--For 
        purposes of this section, the term ``qualified 
        principal residence indebtedness'' means acquisition 
        indebtedness (within the meaning of section 
        163(h)(3)(B), without regard to clause (ii) thereof) 
        with respect to the principal residence of the 
        taxpayer.
          (3) Exception for discharges on account of services 
        performed for the lender.--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.
          (4) Ordering rule.--If any loan is discharged, in 
        whole 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 of the loan (as 
        determined immediately before 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.

           *       *       *       *       *       *       *


SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

  (a) * * *
  (b) Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Exclusion of gain allocated to nonqualified 
        use.--
                  (A) In general.--Subsection (a) shall not 
                apply to so much of the gain from the sale or 
                exchange of property as is allocated to periods 
                of nonqualified use.
                  (B) Gain allocated to periods of nonqualified 
                use.--For purposes of subparagraph (A), gain 
                shall be allocated to periods of nonqualified 
                use based on the ratio which--
                          (i) the aggregate periods of 
                        nonqualified use during the period such 
                        property was owned by the taxpayer, 
                        bears to
                          (ii) the period such property was 
                        owned by the taxpayer.
                  (C) Period of nonqualified use.--For purposes 
                of this paragraph--
                          (i) In general.--The term ``period of 
                        nonqualified use'' means any period 
                        (other than the portion of any period 
                        preceding January 1, 2008) during which 
                        the property is not used as the 
                        principal residence of the taxpayer or 
                        the taxpayer's spouse or former spouse.
                          (ii) Exceptions.--The term ``period 
                        of nonqualified use'' does not 
                        include--
                                  (I) any portion of the 5-year 
                                period described in subsection 
                                (a) which is after the last 
                                date that such property is used 
                                as the principal residence of 
                                the taxpayer or the taxpayer's 
                                spouse,
                                  (II) any period (not to 
                                exceed an aggregate period of 
                                10 years) during which the 
                                taxpayer or the taxpayer's 
                                spouse is serving on qualified 
                                official extended duty (as 
                                defined in subsection 
                                (d)(9)(C)) described in clause 
                                (i), (ii), or (iii) of 
                                subsection (d)(9)(A), and
                                  (III) any other period of 
                                temporary absence (not to 
                                exceed an aggregate period of 2 
                                years) due to change of 
                                employment, health conditions, 
                                or such other unforeseen 
                                circumstances as may be 
                                specified by the Secretary.
                  (D) Coordination with recognition of gain 
                attributable to depreciation.--For purposes of 
                this paragraph--
                          (i) subparagraph (A) shall be applied 
                        after the application of subsection 
                        (d)(6), and
                          (ii) subparagraph (B) shall be 
                        applied without regard to any gain to 
                        which subsection (d)(6) applies.

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 163. INTEREST.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Disallowance of Deduction for Personal Interest.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Qualified residence interest.--For purposes of 
        this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Mortgage insurance premiums treated as 
                interest.--
                          (i) * * *

           *       *       *       *       *       *       *

                          [(iii) Limitation.--Clause (i) shall 
                        not apply with respect to any mortgage 
                        insurance contracts issued before 
                        January 1, 2007.
                          [(iv) Termination.--Clause (i) shall 
                        not apply to amounts--
                                  [(I) paid or accrued after 
                                December 31, 2007, or
                                  [(II) properly allocable to 
                                any period after such date.]
                          (iii) Application.--Clause (i) shall 
                        not apply with respect to any mortgage 
                        insurance contract issued before 
                        January 1, 2007, or after December 31, 
                        2014.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC 216. DEDUCTION OF TAXES, INTEREST, AND BUSINESS DEPRECIATION BY 
                    COOPERATIVE HOUSING CORPORATION TENANT-STOCKHOLDER.

  (a) * * *
  (b) Definitions.--For purposes of this section--
          (1) Cooperative housing corporation.--The term 
        ``cooperative housing corporation'' means a 
        corporation--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) 80 percent or more of the gross income 
                of which for the taxable year in which the 
                taxes and interest described in subsection (a) 
                are paid or incurred is derived from tenant-
                stockholders.]
                  (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.

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 401 OF THE TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 
                                  2005

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Notwithstanding section 6655 of the Internal Revenue Code of 
1986--
          (1) in the case of a corporation with assets of not 
        less than $1,000,000,000 (determined as of the end of 
        the preceding taxable year)--
                  (A) * * *
                  (B) the amount of any required installment of 
                corporate estimated tax which is otherwise due 
                in July, August, or September of 2012 shall be 
                [114.75 percent] 116.75 percent of such amount,

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    The primary goal of the Mortgage Forgiveness Debt Relief 
Act is a necessary and compassionate step to helping 
individuals and families get out of a financial trap when they 
are being given phantom income. At a time when the housing 
market is faltering and some families are finding that the 
mortgage on their home is more than its current market value, 
mortgage companies are restructuring and writing down loans so 
that people can move on with their lives. When a mortgage 
company forgives all or part of a loan, they are required to 
send a Form 1099 to the IRS and to the homeowner stating the 
amount of debt forgiven. The debt forgiveness on this ``phantom 
income'' is currently taxable to the homeowner. It is often a 
huge shock and tremendous burden to the homeowner to be 
relieved of debt but then face a hefty tax bill from the IRS 
for that relief.
    We have confidence that the real estate market for American 
homes is fundamentally strong and that this temporary slump in 
home prices is short term. To address this short term problem 
President Bush proposed a three-year provision to allow for 
tax-free cancellation of indebtedness. We support actions taken 
by the Federal Reserve to lower the borrowing costs for banks. 
These actions have provided banks with the confidence to 
continue to lend money. Expanding the ability of the Federal 
Housing Administration to issue home loans is another option we 
think will help affected homeowners.
    We also believe that this short term problem is worthy of 
being given the ``emergency'' budget designation. This would 
allow this phantom income to remain untaxed and to make it 
unnecessary for this tax relief to be offset with permanent tax 
increases on other Americans.
    With no hearings on the concept of a permanent provision 
for tax-free cancellation of mortgage indebtedness, we do not 
know what long-term behaviors will develop in mortgage markets 
by the same brokers that have been offering 0% down mortgages, 
teaser rates, interest-only mortgages and other risky schemes 
to sub-prime borrowers. We have concerns that this permanent 
tax provision may create an environment where the American tax 
system is complicit in promoting ``risk free'' mortgages.
    Yet the majority believes that this is a permanent problem 
affecting real estate markets and that permanent tax increases 
are required to offset this permanent relief.
    The tax increase the majority has chosen to offset the 
debt-forgiveness provision is a permanent luxury tax on second 
homes. This Committee has a track record on luxury taxes, and 
it isn't good. When the Democrats were last in the majority 
they imposed a luxury tax on ``yachts'' and claimed that only 
rich people would pay this tax. The luxury tax on ``yachts'' 
really ended up being a tax on boats. It was a disaster tax on 
the American boat building industry and on marinas all over 
America. The luxury tax on yachts killed thousands of American 
jobs, devastated an industry and then was finally repealed with 
sincere regret.
    The Census Bureau estimates that one in 20 households in 
America owns a second home. This tax increase is a real problem 
impacting real communities all across America that rely upon 
cabins, lake houses, mountain get-aways or retirement homes as 
a development strategy. Prior to recreation and retirement 
development strategies, some of these areas are down-right poor 
because there is no other industry to create jobs. These 
communities attract residents by planning good health care 
services for the elderly and with retirement and recreation 
minded activities as infrastructure. With this development 
strategy, there are good jobs to be had in these communities.
    However, the luxury tax on second homes that the majority 
imposes with this bill will actively discourage people from 
buying homes prior to their actual retirement. Rather than 
invest early in a retirement home and start building equity in 
that home, this bill will instead give people one more reason 
to spend their hard-earned disposable dollars on other 
pursuits. Luxury taxes have that effect--they push behavior 
away from the ``luxury'' and toward other substitutes. The 
appreciation in these homes will no longer be ``qualified'' for 
purposes of the exclusion from gain on a residence so instead 
people will choose to do other things with their money.
    Again the Ways and Means Committee is acting on legislation 
with no hearings. None of the negative consequences of imposing 
a luxury tax on cabins, and lake houses and retirement homes 
was ever discussed at any hearings. We believe that this tax 
increase will drive down demand and prices for homes in 
retirement communities, sending into a further downward spiral 
the housing prices in these communities. The majority simply 
points to rich people and claims this is who will bear the 
burden of this tax increase. We respectfully disagree.
    Because there were no hearings to discuss and fine-tune 
this proposal we know that the manner of imposing this tax 
increase is disproportionately more harsh on those who have a 
very modest cabin rather than a chic second home in the 
Hamptons. Because a gain on a $10 million home in the Hamptons 
could very well exceed the $500,000 cap on the exclusion from 
gain during the two year residency period, Manhattan 
millionaires won't be paying for this tax increase while the 
lake house owner with a $50,000 gain over 10 years prior to 
retirement in that home won't be able to take that gain into 
account after his period of residency upon retirement.
    If the majority really wants to pursue this tax hike then 
they should schedule hearings and learn the real impact on one 
in 20 households.

                                   Sam Johnson.
                                   Dave Camp.
                                   Kevin Brady.

                                  
