Something I happened to think about concerning all the housing foreclosures.
To make it easier lets say the "house" was financed for $100k.
At the time of foreclosure $70K was still due on the note.
And the "house" was sold at auction for $30k, leaving $40k unpaid on the orginal note.
And (yes I know it's a stretch) that the note holder "forgives" the $40k still due from the "house" buyer.
That being said, again to make it easier, lets say the "house" buyer was a married couple filing jointly, with income between $16,050 and $65,100, seems reasonable for $100k house,( again to make it easier).
The buyers 2008 tax rate is 15% on the income between $16,050 and $65,100.
(http://taxes.about.com/od/2008taxes/qt/2008_tax_rates.htm)
NOTE: The tax rates apply only to the income in each tax bracket range. Also, the tax rates apply only to taxable income. Various adjustments and deductions, including the standard deduction and personal exemptions, all lower your taxable income. Taxable income is almost always less than your total income.
Again to make it easier lets say the buyer still falls into the 15% bracket.
At the end of the year the buyer will recieve a 1090c, (I believe thats the one, not sure tho), that informs them they have to report the "forgiven" $40k as income on there 2008 tax return.
That means the buyer will owe the IRS a additional $6000 in taxes.
Man the IRS is going to be VERY VERY VERY busy this year with all the foreclosures that have happened.
But if they collect on all the "forgiven" additional income they should have a banner year as far as collections go.
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Thanks rollinstone, I missed that one
November 1, 2008 at 3:08 p.m.More incentive for the lenders to sell the difference to a collection agency and bug the heck out of the borrower
for 7 years, not that they don't deserve it .
October 31, 2008 at 11:55 a.m.For the record:
Congress passed the "Mortgage Forgiveness Debt Relief Act of 2007. This act forgives the unpaid debt resulting from foreclosure as far as income taxes are concerned. The law will be phased out at the end of 2009
Understood Legion. Nothing but sympathy for folks that are ill or injured. The unemployed? With "Help Wanted" signs up in almost every cafe and stop n rob, I would think working to pay off your debt is still a viable solution.
October 30, 2008 at 9:21 p.m.And yes, I've worked three of those jobs to get my butt out of a jam. And my precious ego survived and even prospered.
Of course, the only way I'd live in a million dollar house is if I had two in the bank.
Thanks for the lesson Legion, the tax burden never even crossed my mind. I'm sure come tax time a few others will be moaning the same thing. (My house has not been forclosed on).
October 30, 2008 at 7:33 p.m.Those of us still paying our own way have also been losing money on our savings as well. The percentage I am getting on my savings is what I was getting on my checking, probably getting nothing on checking now. I do have to pay tax on the interest my savings earns, I have been wondering if the little bit I did make this year is going to be taxed at a higher rate than what I was getting. Tax time will be interesting to say the least. We will soon also be paying to work, my job is a hobby as it is, I hate to see next years tax codes.
I think I'm gonna liquidate assets & buy an RV.....you can't hit a moving target.
Probable true Bighorn unless both owners lost there jobs or one of them had a serious illness.
October 30, 2008 at 4:46 p.m.I only used that as a example so the math would be a lil easier for some of the posters. I could have used the same couple, earning $250K a year, in a $1M house with a interest only loan. Much worse for them.
I agree that the majority of the people in that situation brought it on themselves.
The main point I was trying to make, was that the government could conceivable see a increase in revenues collected thru the IRS
with all the foreclosures that have happened/pending/might be bought by government itself.
Chance are tho that most people in that situation won't be able to pay the additional tax anyway, at least not when due. Then interest and penalties kick in and even more revenue could conceivable be collected.
I used conceivable because I'd be willing to bet that quite a number of people in that situation will be looking at the least of owing the IRS money for years to come.
Only one issue with your scenario. No one with 30% equity would let their home be foreclosed upon. These "poor victims" are generally upside down and have reverse equity (owe more than the home is worth).
October 30, 2008 at 6:28 a.m.As for the tax situation described, it is only fair that these debt breakers get caught up in their own deception. Just desserts that the IRS seek compensation for the write offs. I'd wager very few of these guys have thought of this happening.
What most people ignore is that those of us that do pay our way are suffering through higher interest rates, tougher loan standards, and most of all, our tax dollars.