Bill > H3770

This bill proposes to amend Massachusetts General Laws, Chapter 62, Section 2, to allow for the exclusion of certain mortgage debt relief from gross income for state tax purposes. Specifically, it would permit individuals to exclude income resulting from the discharge of debt on their principal residence, which includes debt reduced through mortgage restructuring or forgiven during foreclosure. However, this exclusion is subject to several conditions: the forgiven debt cannot exceed $2,000,000 for individuals or $1,000,000 for those married filing separately for federal tax purposes; it must be "acquisition indebtedness," meaning debt used to buy, build, or substantially improve the home, as defined by federal tax law (specifically, section 163(h)(3)(B) of the Code); the excluded amount must reduce the taxpayer's basis in their principal residence, but not below zero; the relief cannot be due to factors unrelated to a decline in the home's value or the taxpayer's financial situation, such as services performed for the lender; and if only a portion of the loan qualifies, the exclusion applies only to the amount exceeding the non-qualifying portion, with the principal residence exclusion taking precedence over an insolvency exclusion unless elected otherwise. The bill also clarifies that "principal residence" has the same meaning as in section 121 of the Code, and it applies to debt discharges occurring on or after January 1, 2013, with the commissioner tasked with creating regulations to implement these provisions.