Congressional inaction turns mortgage relief into tax burden
Source: aljazeera The Stream
The House of Representatives adjourned for the year without an extension on the Mortgage Debt Forgiveness Relief Act (MDFRA), a 2007 law that prevents forgiven mortgage debt from being taxed as income. Starting January 1, any mortgage debt forgiven is eligible to be taxed, creating potentially burdensome liabilities for the millions of Americans in stages of mortgage delinquency as they seek relief to prevent foreclosure.
Prior to MDFRA, Americans who received either a reduction in their mortgage principal or debt forgiveness through the sale of their property were required to report those savings as income for purposes of taxes. Six years ago, Congress recognized that with the collapse of the housing bubble, this aspect of the tax code would result in many Americans owing large portions of their annual income to the IRS.
How it works
Many Americans facing foreclosure received relief from the National Mortgage Settlement, a deal between the federal government and five major banks requiring them to forgive large amounts of mortgage debt. The average principal reduction under the National Mortgage Settlement between March 2012 and July 2013 was $108,000 per borrower. Without the MDFRA, the homeowner making $50,000 per year would have to report an annual income of $158,000. Using a simple tax calculator, the homeowner would owe 34,733 to the IRS, or nearly 70 percent of the homeowner's annual income in a single tax bill.
Now that the MDFRA has expired, the only way homeowners can avoid taxation on their mortgage reduction is to prove insolvency to the IRS.
Read more: http://america.aljazeera.com/watch/shows/the-stream/the-stream-officialblog/2013/12/13/congressional-inactionturnsmortgagereliefintotaxburden.html
demigoddess
(6,644 posts)reverse mortgages. From what I have heard and commercials on tv they look a lot like a scam to me. And sounds like banks are making hay off of them.
QuestForSense
(653 posts)A huge Christmas present for the bankers, but a hard lump of coal for everyone else! No more short sales, no more getting out from under, etc., unless you want a huge, unpayable tax burden for your efforts. They diddled with the bankruptcy laws a few years ago and made even THAT more onerous. They may have to bring back debtors' prisons, which will be a huge boon to the corporate donors since the prisons have already been privatized. The only silver lining I can think of is the potential for people to wake up just long enough to stop voting for these monsters. But we'll have to see.
okaawhatever
(9,462 posts)point of not collecting or examining returns for the money. Hopefully Congress can back date a new law to cover these folks. I wish Obama could issue 100k pardons (or however many folks there are that would be affected) for everyone for this money. Screw the gop. They want executive orders to complain about, let's give the one....
justhanginon
(3,290 posts)probably take care of this right after the 456th vote on repealing the ACA. I'm 77 and I cannot recall a congress with such a worthless bunch of shitz in my life. It's like they must lie in bed at night and think up ways to f... the not so rich citizens of this country. God, it gets old!!!!!
Crash2Parties
(6,017 posts)Considering banks have fast become the nation's largest landlords via 3rd party rental management companies. They've managed to find a way to turn the bad mortgages (that they intentionally wrote) into positive cash flow income property.
Why would they want to do anything that might interfere with the rate of foreclosures and bankruptcies?
Not to mention that they'll be far better positioned going forward to base rent on an applicant's (ruined) credit score if they own more properties.