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Old 08-13-2008, 11:37 AM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,192 times
Reputation: 908

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I posted this thread before with a different title.. Mortgage Debt Forgiveness Relief Act of 2008. .but maybe it kind of blew over a few people..

I'm posting it again because there is a lot of misinformation (along with some good information too).

Earlier this year President Bush signed into a law that says that the difference between what the bank gets in foreclosure/short sale vs. what you owe WILL NOT BE TAXED AS INCOME! It applies to years 2007-2009.

It is extremely important for many reasons. For one, considering the decline is so significant in property values.. those loosing their home could've ended up having to pay income taxes on $80K (just throwing a number out their) on money they never actually had! Also.. could you imagine the money the IRS would have to spend coming after the million plus people who will now NOT be paying their taxes andowe that because they obviously don't have it!! That would be insane.

It also gives you some leverage with the bank.. because normally it would be in your best interest to get thebank as much $$ as possible in the short sale to make that difference as small as possible. (you should do this anyway).. BUT.. in my case I had a lien they were refusing to go through the short sale with that I couldn't satisfy (don't have it right now) and don't have the time to get it removed before a foreclosure would occurr.. and I basically told them that THEY stand to loose the most if they deny te short sale (and just as a side note.. the bank is getting well above the minimum they were willing to accept even with the lien).. ...

it appears they have agreed as they have requested me to have my attorney draw up the contracts on the highest offer..

It is also important piece of information to have in your arsenal when deciding what is the best move for you and your family (notice it wasn't very well publicized and so many people don't know about it)

I asked my attorney too...just to be sure.

Best of luck to all of you going through a hard situation.. know you are not alone and that you will get through it and recover.
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Old 08-15-2008, 07:00 PM
 
Location: Athens, GA
76 posts, read 369,387 times
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Prior to the new law taking effect, the former homeowner only had to pay taxes if the market value of the house at the time of foreclosure was less than the loan balance at the time of foreclosre. If the value was higher then in essence it was the homeowner taking the loss. Oddly enough, the lender was exempt from paying taxes in that event. One has to remember that upon foreclosure, the lender will turn around and sell the property for a profit, in most cases.

The new law had to be passed because of the drastic economic decline of so many neighborhoods.
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Old 08-17-2008, 09:49 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,594,435 times
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well thats because the lender 1099's you for the short sale amount and 1099 is what again? income! debt forgiveness.
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Old 08-18-2008, 12:38 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,192 times
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Quote:
Originally Posted by brokerdave View Post
well thats because the lender 1099's you for the short sale amount and 1099 is what again? income! debt forgiveness.
the whole point.. is that the "difference" should never be reported on a 1099 as income.. because it's not money the actual person really made.

If you have credit cards and settle to debt and get "settled in less than full" they don't fill out 1099 for the forgiven debt! So neither should a foreclosure/short sale. It's just silly..

They should make that law permanent.. not just through 2009
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Old 08-18-2008, 04:05 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,594,435 times
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hmm perhaps you dont understand accounting?

you want to buy a home, it costs 100k, you borrow 95k <--- this is money you RECEIVE for the purchase. for arguments sake we will say it is interest only.

Value: 100k
Loan: 95k
short sale: 90k
amount owed after sale: 5k

market depreciates you sell the house in short-sale. for 90k, now you owe 5k. they forgive the debt, which now means you have TAXABLE INCOME, because you received it and now you don't have to give it back. All because you really did get it!

Do you understand now?

This law will not be made permanent. It is only to ease those who are having financial difficulties right now.

As far as credit cards, they don't give you 25k and then say pay us back over time. its CREDIT. you never received money for the transactions, you simply charged the money owed to a different medium and now you owe the credit card company.


I don't mean to sound rude. I am just frustrated at all the misinformation out there. Understanding parts of it doesn't mean you get it.

Last edited by brokerdave; 08-18-2008 at 04:19 PM..
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Old 08-18-2008, 04:22 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,192 times
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Quote:
Originally Posted by brokerdave View Post
hmm perhaps you dont understand accounting?

you want to buy a home, it costs 100k, you borrow 95k <--- this is money you RECEIVE for the purchase. for arguments sake we will say it is interest only.

Value: 100k
Loan: 95k
short sale: 90k
amount owed after sale: 5k

market depreciates you sell the house in short-sale. for 90k, now you owe 5k. they forgive the debt, which now means you have TAXABLE INCOME, because you received it and now you don't have to give it back. All because you really did get it!

Do you understand now?



As far as credit cards, they dont give you 25k and then say pay us back over time. its CREDIT. you never received money for the transactions, you simply charged the money owed to a different medium and now you owe the credit card company.

Um.. in a mortgage you do the same thing.. the money goes from one to another without you ever touching it... same damned concept as a credit card.. because basically credit card are money that's there for you to borrown adn pay back wiht interest.. You take your credit card.. charge it for something and take that something home with you. You never had the money. you BORROWED the money and are paying back that money with interest. You wouldn't have had that money from the credit card company UNLESS you were using it to buy something..

As for the home.. same thing.. it's not like you go to the mortgage company and they hand you $400K and now its money you have.. it's again.. money you are borrowing and paying back on interest for a good, in this case a home.

I'll one up ya.. atleast with a house the bank recoups the cost by taking the house back and selling it or you short sale it and they recoup smoe of the money.. With a credit card YOU have the goods that you used the borrowed money to purchase AND the bank doesn't get the money back in full (remember.. settled in less than full) and you don't have to pay income on that..

I'm not a flipping idiot.. but it still seems INSANE to tax someone on money they don't physically have in their hands.. We make our pay and the gov't skims the money off the top for taxes.. and they get that money because it's actual money that you had in your possession. Someome that is in foreclosure/short sale and owes a balance obviously doesn't have the physical money in hand for the gov't to take their piece of. Basically they are trying to take a piece of nothing that really existed in the first place.

Thank god for htis bill. If I had to pay a 1099 on the difference between what my house is selling for and the balance with all the BS it would be DOUBLE my household income, put me in a much higher tax braket (probably well over the $150K mark) and I'd owe IRS money I'd never be able to repay becuase I never had it to begin with.. forget about compiling interest..etc.

The whole thing is ridiculous.. the ONLY reason why the gov't doesn't go after forgiven debt on a credit card is because the sums are not large.. but they see $$ in bigger transactions. All that 1099 does for someone is pour salt on the wounds and make it impossible for someone to ever financially recover!!

Again. . atleast Bush did something right before he left office! They should just make it a permanent thing.
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Old 08-19-2008, 12:26 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,594,435 times
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Quote:
Originally Posted by TristansMommy View Post
Um.. in a mortgage you do the same thing.. the money goes from one to another without you ever touching it... same damned concept as a credit card.. because basically credit card are money that's there for you to borrown adn pay back wiht interest.. You take your credit card.. charge it for something and take that something home with you. You never had the money. you BORROWED the money and are paying back that money with interest. You wouldn't have had that money from the credit card company UNLESS you were using it to buy something..

As for the home.. same thing.. it's not like you go to the mortgage company and they hand you $400K and now its money you have.. it's again.. money you are borrowing and paying back on interest for a good, in this case a home.

that's just it, yes they are handing you $400k. think about it this. get rid of the computers. your in the wild west and want to buy a piece of land. but you need to borrow money to purchase it. you would go to the banker and tell him you want to buy this parcel. the banker agrees to lend you the money, but as long as the money is used for the purchase. he will lend you the money and if you can not pay the money back he will just take the land instead.

it is still the same concept, only difference is now it is streamlined. have you ever seen a HUD 1? do you have access to look at one? it shows that the lender is debiting you $400k and then on that HUD 1 you are credited to the seller or previous lender (if its a refinance).


when it comes to credit cards you dont already have the money. what you have is an available line of CREDIT. a loan is a debit.

let me try this. do you know what rent-to-own means? that is what a credit card is. when your purchase something with credit, you dont own that item, the credit card company does. now you pay the credit card company a "fee" to buy/pay the item from them.

I'll one up ya.. atleast with a house the bank recoups the cost by taking the house back and selling it or you short sale it and they recoup smoe of the money.. With a credit card YOU have the goods that you used the borrowed money to purchase AND the bank doesn't get the money back in full (remember.. settled in less than full) and you don't have to pay income on that..

why shouldn't the bank recoup there loss? if you lent your own money for someone to buy a house, wouldn't you want your money back? is it fair for you to lose $5k-$100+k of your hard earned money? or money you borrowed at a lower rate to lend out?

I'm not a flipping idiot.. but it still seems INSANE to tax someone on money they don't physically have in their hands.. We make our pay and the gov't skims the money off the top for taxes.. and they get that money because it's actual money that you had in your possession. Someome that is in foreclosure/short sale and owes a balance obviously doesn't have the physical money in hand for the gov't to take their piece of. Basically they are trying to take a piece of nothing that really existed in the first place.

we are in a paperless society. most transactions aren't money in the hands anymore.

Again. . atleast Bush did something right before he left office! They should just make it a permanent thing.
I still dont see any reason why this should be made permanent. this is a very basic accounting rule. and yes, the administration did this to help people like yourself. we all saw this coming.

one other main problem is, most people dont go to CPA's for financial advice or future planning or even to file. going to an "accountant" for $35 is not the same thing and they dont keep up with yearly changes. a lot of people lose out financially. it pays to have a planner.
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Old 08-19-2008, 12:43 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,111,192 times
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Quote:
Originally Posted by brokerdave View Post
I still dont see any reason why this should be made permanent. this is a very basic accounting rule. and yes, the administration did this to help people like yourself. we all saw this coming.

one other main problem is, most people dont go to CPA's for financial advice or future planning or even to file. going to an "accountant" for $35 is not the same thing and they dont keep up with yearly changes. a lot of people lose out financially. it pays to have a planner.

You know.. you miss my whole point entirely.. you're so bent on arguing the semantics that you dnot' see that just because the "paper hud" debits one party and then credits another.. that's just a technicality.

Basically it's money YOU never had and wouldn't have had otherwise unless it was used to purchase a house. It's not like you won the lottery and suddenly you have $400K in cash sitting around to which you can then pass on that cash to the government for thier cut.

Really. .. mortgage is the same concept as a credit card period. You are taking money you never really had that you are paying back to buy something.. .. the ONLY reason why the gov't manipulates it so that it's
"income" is because they see there is a lot of money to be had in it..

I never had any objection to the bank recouping their loss by taking the property I have a problem with the IRS taxing people should their house short sell.. becuase it's money, again , that they never had, never earned.. it wasn't income!!! Just because the feds manipulate and move paper so that technically it fits into their neat little accounting terms doesn't make it logical or even right.

YOur concept of a credit card rent to own is a bunch of BS too.. whenyou rent to own.. you don't pay. .youleave the house and the owner still has possesion. The owner retains the possessionof the property..so you never owned it..

With goods bought on credit card you own the property.. and the credit card company doesn't come and take it away from you because youdidn't pay your bill ... so they are two completely seperate things..

Just because it fits into an "accounting" term doesn't make it logical.. or right for that matter!

Can you imagine.. My home is selling for 70K less than I owe..so add that to my salary and lets say I get taxed at a 140K income a year.. only problem is , it's not like I had the additional 70K to use a portion of it to pay the taxman? It's not TRUE income.. TRUE INCOME IS WHEN YOU GO TO WORK AND GET YOUR PAYCHECK.. OR You make a profit on something.. foreclosing and loosing your home is NOT profiting and mkaing an income.. as a matter of fact.. I'M LOOSING OVER $100k I've put into my home..

You can put it down on paper however way you'd like.. Uncle Sam can manipulate it all they like so they can bilk you. .still doesn't make it right or permanent..

Again.. thank GOD Bush passed this new bill.. atleast for the next 2 years!


And just to add.. there are many things that on paper and with technicalities..exist in our gov't etc.. just because it's there and manipulated to suite the benefiting party doesn't make it logical.. there is nothing logically about taxing people who are loosing their homes for their losses

Last edited by TristansMommy; 08-19-2008 at 12:53 PM..
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Old 08-19-2008, 02:34 PM
 
3,583 posts, read 10,239,620 times
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when it comes to credit cards you dont already have the money. what you have is an available line of CREDIT. a loan is a debit.

let me try this. do you know what rent-to-own means? that is what a credit card is. when your purchase something with credit, you dont own that item, the credit card company does. now you pay the credit card company a "fee" to buy/pay the item from them.

Ummm- sorry "brokerdave" but you have it a bit wrong. Looking at a balance sheet for an individual, the value of the goods (i.e. the property) would be a debit and then offset by the value of the loan as a credit. Any difference between the two would be your equity in the asset posted as a debit as well. Thats where the "balance" in balance sheet comes in. Negative equity would post as a credit against the value of the property.

Also a credit card and a "rent to own" deal are apples and oranges. Credit cards are unsecured debt. Unlike say a car or a home, the issuer cannot come back to claim the property itself, only the monetary value of the property. A rent to own deal is just that, rent. No value can be claimed until the rental period is complete. In other words, rent to own is an expense that converts to an asset at the end of the rental period. Sorry but the accountant in me just couldn't let this pass without correcting it. So much for the accounting lesson for today
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Old 08-19-2008, 03:31 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,594,435 times
Reputation: 249
Quote:
Originally Posted by Va-Cat View Post
when it comes to credit cards you dont already have the money. what you have is an available line of CREDIT. a loan is a debit.

let me try this. do you know what rent-to-own means? that is what a credit card is. when your purchase something with credit, you dont own that item, the credit card company does. now you pay the credit card company a "fee" to buy/pay the item from them.

Ummm- sorry "brokerdave" but you have it a bit wrong. Looking at a balance sheet for an individual, the value of the goods (i.e. the property) would be a debit and then offset by the value of the loan as a credit. Any difference between the two would be your equity in the asset posted as a debit as well. Thats where the "balance" in balance sheet comes in. Negative equity would post as a credit against the value of the property.

Also a credit card and a "rent to own" deal are apples and oranges. Credit cards are unsecured debt. Unlike say a car or a home, the issuer cannot come back to claim the property itself, only the monetary value of the property. A rent to own deal is just that, rent. No value can be claimed until the rental period is complete. In other words, rent to own is an expense that converts to an asset at the end of the rental period. Sorry but the accountant in me just couldn't let this pass without correcting it. So much for the accounting lesson for today
yes it was a bad example, i was gonna come back and change it. but i was busy.
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