President signs mortgage forgiveness debt relief act of 2007; AICPA urged enhanced exclusion provision.

President Bush recently signed into law the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) which would exclude from gross income up to $2 million ($1 million for married filing separately) forgiven on the debt used to buy, build or substantially improve the principal residence of debt-ridden homeowners during 2007-2009. The amount excluded would reduce the basis, but not below zero, of the principal residence. The exclusion would apply if the discharge is directly related to a decline in the value of the residence or to the taxpayer's financial condition.

The bill also permits surviving single spouses to qualify for the $500,000 home-sale exclusion if the sale occurs not later than 2 years after his/her...