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SD 1508

An Act relative to the relief of mortgage debt

194th Legislature (2025-2026) Introduced by Mark Montigny

Massachusetts excludes from gross income discharge of debt on a principal residence (up to $2,000,000), aligning with federal rules for forgiveness, restructuring, or foreclosure.

House concurred
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Bill Summary · SD 1508

Summary: An Act relative to the relief of mortgage debt (Senate Docket No. 1508)

Status: House concurred
Introduced: February 27, 2025
Filed: January 16, 2025 (Senate No. 2039)
Committee reference: Revenue

Notes: The bill was previously filed in a similar form in 2023-2024 (Senate No. 1879). The sponsor is Senator Mark C. Montigny.

Purpose and intent

  • To provide a Massachusetts state income tax exclusion for discharge of debt on a principal residence, including debt discharged through mortgage restructuring and debt forgiven in connection with foreclosure.
  • The exclusion aligns Massachusetts tax treatment with federal tax concepts for forgiven mortgage debt, with conditions and limitations described below.
  • The act retroactively targets discharges occurring on or after January 1, 2013.

Key provisions

  • Insertion into the Massachusetts general income tax provision (General Laws, Chapter 62):
    • A new subsection (S) to exclude from gross income income attributable to discharge of debt on a principal residence, including debt reduced through mortgage restructuring and debt forgiven in foreclosure.
  • Exclusion limits:
    • Maximum eligible forgiven debt: up to $2,000,000 (or $1,000,000 if married filing separately) for purposes of the Massachusetts exclusion.
  • Scope of debt eligible:
    • Applies to “acquisition indebtedness” as defined by section 163(h)(3)(B) of the Internal Revenue Code.
  • Tax basis implication:
    • The amount excluded from gross income reduces the taxpayer’s Massachusetts basis in the principal residence, but not below zero.
  • Limitations and exclusions:
    • Exclusion does not apply to discharge of a loan if the discharge arises from services performed for the lender or other factors not directly related to a decline in residence value or the taxpayer’s financial condition.
    • If a loan discharge includes both qualifying and non-qualifying amounts, only the portion that qualifies receives the exclusion; the non-qualifying portion remains subject to tax.
    • The principal residence exclusion takes precedence over insolvency exclusions unless the taxpayer elects otherwise.
  • Definitions:
    • “Principal residence” has the same meaning as the federal Code (Code §121).
  • Regulatory framework:
    • The Commissioner must promulgate regulations to effectuate the provision within 180 days of the act’s effective date.

Who is affected

  • Homeowners who have had debt discharged on their principal residence due to forgiveness, restructuring, or foreclosure.
  • Filers are subject to the Massachusetts income tax treatment; married couples filing separately have a lower exclusion cap ($1,000,000).
  • Mortgage lenders and servicers indirectly influenced via compliance with the new exclusions and reporting.

Timeline, effective date, and administration

  • Effective scope: Applies to discharges of indebtedness on or after January 1, 2013.
  • Regulatory action: Requires regulatory regulations to be issued within 180 days after the act’s effective date.
  • Legislative actions: Referred to the Committee on Revenue (February 27, 2025); House concurred (same date).

Practical impact

  • Potential reduction in Massachusetts taxable income for qualifying mortgage debt discharges, potentially lowering state tax liability for affected homeowners.
  • Requires careful tracking of discharge events, basis adjustments, and the capital gains implications upon future sale of the principal residence.
  • Amount limits and definition align with federal concepts, but apply within Massachusetts’ tax framework.

Compiled from official sources — confirm details with the bill’s official record.

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