Congress fixes a brutal tax law and Bush signs it

[lawrocket 3]

In many senses, I agree with you. There is financial irresponsibility that has caused plenty of this.

BUT...

In amny of these, it was not a refinance that caused it. This was a purchase that depreciated.

Let's look at who loses in these issues:
1) Homeowners. Yes, screw them. The government should not be pumping them up to save their mortgages.
2) The lenders. Yes, screw them. The government should not be pumping them up for exercising lousy business practices.

Neither the homeowners nor the lenders should get any sympathy or assiatnce from the government.

However
Where is the righteousness, fairness or equity in the government making money off of the homeowner here? Where?

Should the government make money in taxing these people? The people lose a bunch of money. The lenders lose a bunch of money.

And the government makes $650 million off of it.

Doesn't that sound mor elike a racket?

My wife is hotter than your wife.

[JohnnyD 0]

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However
Where is the righteousness, fairness or equity in the government making money off of the homeowner here? Where?

Should the government make money in taxing these people? The people lose a bunch of money. The lenders lose a bunch of money.

And the government makes $650 million off of it.

Doesn't that sound mor elike a racket?

You obviously didn't read the link.

[nerdgirl 0]

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Should the government make money in taxing these people? The people lose a bunch of money. The lenders lose a bunch of money.

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I don't know enough about corporate banking or real estate law & regulations, other than to ask questions.

Were lenders previously able to deduct the difference (loss) as a business loss?

If so, does the new law allow for those deductions (losses) to be taken twice? I.e., once by the home-seller and once by lender?

Looking at the IRS Q&A website, the change in law extends to personal bankruptcy and farm debt.

VR/Marg

Act as if everything you do matters, while laughing at yourself for thinking anything you do matters.
Tibetan Buddhist saying

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[kallend 1,666]

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I am glad he signed it too. I dont care if a CEO gets some debt forgiven

But it REALLY pisses you off if a poor person gets some help with a medical bill.

...

The only sure way to survive a canopy collision is not to have one.

[kallend 1,666]

If you recall your grade school math, -(-x) = +x

So a debt forgiven IS income or a capital gain.

...

The only sure way to survive a canopy collision is not to have one.

[rushmc 18]

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I am glad he signed it too. I dont care if a CEO gets some debt forgiven

But it REALLY pisses you off if a poor person gets some help with a medical bill.

Now this is an idotic stretch. Feeling pissy today?

What else am I thinking? Please tell me. You obviously know I mean, You make a piece of shit statement like this you must know something I do not .
Hell, what am I saying. You know shit NOBODY else knows

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[lawrocket 3]

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I am glad he signed it too. I dont care if a CEO gets some debt forgiven

But it REALLY pisses you off if a poor person gets some help with a medical bill.

That's a different scenario. In one scenario, Peter has 10. Mary was going to take two of them, but did not. Thus, Peter has 10. Paul has zero.

In the other situation, Peter has 10. Mary takes two of them. Paul gets 2. Thus, Peter has 8 and Paul has 2.

Or even Peter has 0. Paul owes 10 to Peter but only has 8. Peter settles with Paul by accepting Paul's 8 and writing off the 2. Mary wants 2 from Paul. This is what the law is supposed to clear up.

I understand the math, professor. I've probably explained it to thrity people over the last couple of months - telling them to hold their breaths that this law will get passed and signed.

I do believe that a NUMBER of these people were dumb in doing what they did. I do not believe that they deserve much sympathy. I do not believe that the banks deserve much sympathy. The government should not be backing either of them up.

But as much as I think that the government should not be helping them, nor do I think that the government should be punishing them. And in a sense, this counts IN PRACTICE as additional punishment to the poor who have lost a home.

Of course, if someone has used up $50k in credit card debt, and has that cancelled, then yes, I believe that the person SHOULD pay taxes on that. There really has been something tangible received for it.

But I'm surprised at the amount of "Tax the Poor" attitude I'm seeing. I don't think the poor should be taxed. I don't think the middle class should be taxed much. And I don't think the rich should be taxed a lot.

My wife is hotter than your wife.

[kallend 1,666]

Let's see.

Someone gets EARNS $500,000 and has to pay tax on it.

Someone makes $500,000 in investment income and has to pay tax on it.

Someone makes a capital gain of $500,000 and has to pay tax on it.

Someone gets $500,000 from a bank based on a promise they won't keep, doesn't pay it back, but doesn't have to pay tax on it.

Something wrong with your logic there.

...

The only sure way to survive a canopy collision is not to have one.

[rushmc 18]

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Let's see.

Someone gets EARNS $500,000 and has to pay tax on it.

Someone makes $500,000 in investment income and has to pay tax on it.

Someone makes a capital gain of $500,000 and has to pay tax on it.

Someone gets $500,000 from a bank based on a promise they won't keep, doesn't pay it back, but doesn't have to pay tax on it.

Something wrong with your logic there.

I thought you were using convoluted logic but I know believe I am wrong. You are a socialist. And that is OK if that is what you believ but I wonder ..... Are you a US citizen????

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[lawrocket 3]

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Someone gets $500,000 from a bank based on a promise they won't keep, doesn't pay it back, but doesn't have to pay tax on it.

That is overly simplified.

What you have done is promise to pay $500,000.00. THink of it this way - who "owns" the home? The banks do, until the loan is paid off.

Let's say the house is worth $400k. Okay. That means there is $400k in equity in that house that belongs to someone, right? To whom does that equity belong?

THE BANK! The homeowner in a sale of $400k for a house secured by a $500 note will receive exactly ZERO. The homeowner cannot give grant title to this home until that note is satisfied or released.

See. Here's an example. The homeowner has a $500k note. And he sells the home for $540k. After escrow fees, title, broker fees, etc., there is exactly $500k left. Then the $500k is paid to the bank to satisfy the note securing that property.

How much has the borrower received? Yep. Zero. Because we are talking a notional amount of consideration.

Now, what if the borrower talked the note down to $450k as a payoff and pocketed the other $50k? Well then, I could see a good reason to tax the guy on $50k.

What if the home only sold for $450k on the $500k note? The bank cancels the debt. How much money has the owner made?

See? Does it make sense that the owner would pay MORE in taxes for sellign the house for LESS? Had he gotten and extra $50k for the home, he would pay no taxes. (in this notional scenario).

The taxes on the capital gain were already paid to the previous owner, who received the $500k for the home, right?

That's where this is confusing and seems unfair. The owner has not received a tangible gain at all! In fact, the more he gets for the home, the less money he pays in taxes. He'd pay less in taxes if he walked away with $49k from the sale instead of a negative $50k.

The point is - the person never actually received $500k. It is a promissory note secured by a mortgage. Once the person pays $500k the bank gives title to the property to the borrower.

The bank buys the property for $500k and sells it to the borrower for $500k. That s actually how it works.

My wife is hotter than your wife.

[rushmc 18]

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Someone gets $500,000 from a bank based on a promise they won't keep, doesn't pay it back, but doesn't have to pay tax on it.

That is overly simplified.

What you have done is promise to pay $500,000.00. THink of it this way - who "owns" the home? The banks do, until the loan is paid off.

Let's say the house is worth $400k. Okay. That means there is $400k in equity in that house that belongs to someone, right? To whom does that equity belong?

THE BANK! The homeowner in a sale of $400k for a house secured by a $500 note will receive exactly ZERO. The homeowner cannot give grant title to this home until that note is satisfied or released.

See. Here's an example. The homeowner has a $500k note. And he sells the home for $540k. After escrow fees, title, broker fees, etc., there is exactly $500k left. Then the $500k is paid to the bank to satisfy the note securing that property.

How much has the borrower received? Yep. Zero. Because we are talking a notional amount of consideration.

Now, what if the borrower talked the note down to $450k as a payoff and pocketed the other $50k? Well then, I could see a good reason to tax the guy on $50k.

What if the home only sold for $450k on the $500k note? The bank cancels the debt. How much money has the owner made?

See? Does it make sense that the owner would pay MORE in taxes for sellign the house for LESS? Had he gotten and extra $50k for the home, he would pay no taxes. (in this notional scenario).

The taxes on the capital gain were already paid to the previous owner, who received the $500k for the home, right?

That's where this is confusing and seems unfair. The owner has not received a tangible gain at all! In fact, the more he gets for the home, the less money he pays in taxes. He'd pay less in taxes if he walked away with $49k from the sale instead of a negative $50k.

The point is - the person never actually received $500k. It is a promissory note secured by a mortgage. Once the person pays $500k the bank gives title to the property to the borrower.

The bank buys the property for $500k and sells it to the borrower for $500k. That s actually how it works.

Sorry if I seem harsh but, you are wasting your time

I agree with you. Most likely that makes no different and that is ok but, thanks for your posts. You legal point of view is something I find very interesting

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[JohnnyD 0]

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Someone gets $500,000 from a bank based on a promise they won't keep, doesn't pay it back, but doesn't have to pay tax on it.

That is overly simplified.

What you have done is promise to pay $500,000.00. THink of it this way - who "owns" the home? The banks do, until the loan is paid off.

Let's say the house is worth $400k. Okay. That means there is $400k in equity in that house that belongs to someone, right? To whom does that equity belong?

THE BANK! The homeowner in a sale of $400k for a house secured by a $500 note will receive exactly ZERO. The homeowner cannot give grant title to this home until that note is satisfied or released.

See. Here's an example. The homeowner has a $500k note. And he sells the home for $540k. After escrow fees, title, broker fees, etc., there is exactly $500k left. Then the $500k is paid to the bank to satisfy the note securing that property.

How much has the borrower received? Yep. Zero. Because we are talking a notional amount of consideration.

Now, what if the borrower talked the note down to $450k as a payoff and pocketed the other $50k? Well then, I could see a good reason to tax the guy on $50k.

What if the home only sold for $450k on the $500k note? The bank cancels the debt. How much money has the owner made?

See? Does it make sense that the owner would pay MORE in taxes for sellign the house for LESS? Had he gotten and extra $50k for the home, he would pay no taxes. (in this notional scenario).

The taxes on the capital gain were already paid to the previous owner, who received the $500k for the home, right?

That's where this is confusing and seems unfair. The owner has not received a tangible gain at all! In fact, the more he gets for the home, the less money he pays in taxes. He'd pay less in taxes if he walked away with $49k from the sale instead of a negative $50k.

The point is - the person never actually received $500k. It is a promissory note secured by a mortgage. Once the person pays $500k the bank gives title to the property to the borrower.

The bank buys the property for $500k and sells it to the borrower for $500k. That s actually how it works.

In your senario, there is not a taxable event.
Read the IRS article I linked to. Run some scenarios with numbers and try to come up with one that will result in a taxable gain from forgiveness of debt. I think you will be really surprised. This is not at all what you think it is.

[lawrocket 3]

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you are wasting your time

I don't think so. Professor kallend brings up good points, and actually raises common misconceptions held by a lot of people. Most people believe they never see the money that they are asked to pay back. In most cases, I believe that they are correct. Some people believe they actually DID see the money, which is true in cases like equity lines of credit and in a number of refinance situations.

This stuff is pretty complicated. I myself don't understand a lot of it. Kallend has proven me wrong on many occasions in the past, and I welcome the opportunity to be challenged and see things in a different way.

It does nothing but help me. And hopefully others, as well.

My wife is hotter than your wife.

[rushmc 18]

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you are wasting your time

I don't think so. Professor kallend brings up good points, and actually raises common misconceptions held by a lot of people. Most people believe they never see the money that they are asked to pay back. In most cases, I believe that they are correct. Some people believe they actually DID see the money, which is true in cases like equity lines of credit and in a number of refinance situations.

This stuff is pretty complicated. I myself don't understand a lot of it. Kallend has proven me wrong on many occasions in the past, and I welcome the opportunity to be challenged and see things in a different way.

It does nothing but help me. And hopefully others, as well.

Ok, I respect the learning and challenging aspect of your point but, the lack of respect for other opinions is disgraceful. Different points of view I can accept but not his arrogant self importance.

I have my mirror, and when it suits him he ueses that as an insult.

Proof of my point I think

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[lawrocket 3]

I will take a look at it.

Okay. The law seems to address the debt of paragraph 3, step 1.

It is more complicated.

My wife is hotter than your wife.

[DrewEckhardt 0]

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Of course, if someone has used up $50k in credit card debt, and has that cancelled, then yes, I believe that the person SHOULD pay taxes on that. There really has been something tangible received for it.

What if a person had $50K in credit card debt, did a cash-out refinance into an ARM, and then had the $50K forgiven when the ARM interest rate increased?

What if a person spent $50K in cash on cars and consumer goods to avoid credit card debt, got a 100% ARM for the same house they would have bought living a less extravagant lifestyle, and had that $50K forgiven after they learned they shouldn't have done that?

What if an otherwise frugal person spent $50K on housing more than they should have, couldn't make the payments after the teaser period, and had the $50K forgiven?

Although the timing and mechanics of the financial mistakes vary in all four examples, it's the same over-spending problem which deserves the same treatment. Forgiven debt should be taxable income or not.

I'd suggest that the lenders get the collateral (house) or proceeds from sale of goods purchased on credit ($0 in the case of non-durables like vacations), take a capital loss just as if they'd invested in the stock market instead of an individual, and there isn't any retroactive income.

It doesn't hurt people who were just down on their luck, is fair, and doesn't cost much.

[rushmc 18]

HE did mention credt cards in this thread

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[JohnnyD 0]

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I will take a look at it.

Okay. The law seems to address the debt of paragraph 3, step 1.

It is more complicated.

Now you are getting it.
Note the difference between p3 step 1 and step 2.
Step 1 relates to cancellation of debt.
Step 2 relates to foreclosure.
The capital gain exclusion is in play in a foreclosure.
To trigger taxable income in the event of a foreclosure, the difference in FMV and sales price would have to be to the extent that no mortgage company on earth would put out for it.
So ask yourself this - Cancellation of debt - who does that and why?
I bet the politics of economics are beginning to surprise you.

[rushmc 18]

I bet the politics of economics are beginning to surprise you.

WOW

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[nathaniel 0]

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Although the timing and mechanics of the financial mistakes vary in all four examples, it's the same over-spending problem which deserves the same treatment. Forgiven debt should be taxable income or not.

Bingo. So-called "earmarks" on money are entirely illusory.

Plus, a nitpick with lawrocket: when you buy a house with a mortgage, you do own the house. The bank gets a lien--they can't move in, or tell you how to dress the place. You get the ups and downs on the property if it appreciates or depreciates. For the bank to come in and take ownership is but one of several possible outcomes of a foreclosure process -- other times a sale is forced and the bank takes just the proceeds up to the outstanding balance without ever owning the house.

My advice is to do what your parents did; get a job, sir. The bums will always lose. Do you hear me, Lebowski?

[Gawain 0]

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Let me explain how it worked:

Let's say that a homeowner is having trouble making ends meet. The homeowner puts the home up for sale and sells the home for $250,000.00. But there is still $300,000.00 owing on the mortgage. If the bank agrees to take less, this is called a "short sale." The bank will not seek liability for that remaining $50,000.00 because the bank has canceled the debt, and the homeowner is free from that $50k he would owe.

Then the homeowner got smacked. Under the IRS rules, this canceled debt is considered income. The IRS reckons that that homeowner just made $50,000.00. And the IRS wants it's tax money from it. Imagine the surprise when the 1099 comes for $50k. And the IRS wants its money.

The same holds true for foreclosure. If the foreclosed house sold for $250k on a $300k note, and the bank did not go for a deficiency judgment but canceled the debt, then the same rule would apply.

So, imagine the poor family that just lost a house, has nothing, and gets hit with a tax bill for $7,500.00, or more because the income level just went up and the family is now at a higher tax bracket.

This law changes that liability so that the foreclosed family isn't given a final kick in the face by Uncle Sam. It is not considered income anymore so long as the property was used as a residence.

This change is expected to cost Uncle Sam $650 million - $650 million that would have come from people without the ability to pay it.

I VERY much applaud this change.

I understand what the law is. I'm saying that with the softer market, the debt forgiveness is not necessarily the right solution.

Some of these poor-families that you speak of are not "poor".

So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

[rushmc 18]

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Let me explain how it worked:

Let's say that a homeowner is having trouble making ends meet. The homeowner puts the home up for sale and sells the home for $250,000.00. But there is still $300,000.00 owing on the mortgage. If the bank agrees to take less, this is called a "short sale." The bank will not seek liability for that remaining $50,000.00 because the bank has canceled the debt, and the homeowner is free from that $50k he would owe.

Then the homeowner got smacked. Under the IRS rules, this canceled debt is considered income. The IRS reckons that that homeowner just made $50,000.00. And the IRS wants it's tax money from it. Imagine the surprise when the 1099 comes for $50k. And the IRS wants its money.

The same holds true for foreclosure. If the foreclosed house sold for $250k on a $300k note, and the bank did not go for a deficiency judgment but canceled the debt, then the same rule would apply.

So, imagine the poor family that just lost a house, has nothing, and gets hit with a tax bill for $7,500.00, or more because the income level just went up and the family is now at a higher tax bracket.

This law changes that liability so that the foreclosed family isn't given a final kick in the face by Uncle Sam. It is not considered income anymore so long as the property was used as a residence.

This change is expected to cost Uncle Sam $650 million - $650 million that would have come from people without the ability to pay it.

I VERY much applaud this change.

I understand what the law is. I'm saying that with the softer market, the debt forgiveness is not necessarily the right solution.

Some of these poor-families that you speak of are not "poor".

He is not talking about the forgivness of debt. He is talking about taxing the forgiveness of debt

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[billvon 2,462]

>Had BC signed it (IMO) it would not have been about corp greed but a
>great dead for the little guy.

Rush, had he signed such a bill ten years ago, I have no doubt you would still be going on about how Bill Clinton "INCREASED TAX BURDEN to healp lazy dedbeats who can't be bothered to help themselves! Redistrubution of wealth! It's horrible!"

[Lucky... 0]

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You were against immunity from lawsuits for legally operated businesses, producing a product which may be misused by the customers, or those who steal, or illegally own a product?

You are wayyyyyy the fuck out there aren't you?

I'm out there? OK, genius, step away from teh bong and go back and read what I wrote, which was:

I am objective and can applaud the loser for that as well as lawsuit immunity for gun makers - the only positive things he's done in 7 years.


Applaud; perhaps you are unaware of what that means ... I'll try to stick to 1 syllable words for you .

[rushmc 18]

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>Had BC signed it (IMO) it would not have been about corp greed but a
>great dead for the little guy.

Rush, had he signed such a bill ten years ago, I have no doubt you would still be going on about how Bill Clinton "INCREASED TAX BURDEN to healp lazy dedbeats who can't be bothered to help themselves! Redistrubution of wealth! It's horrible!"

In an odd kind of way you make my point! In the end it really does not matter who signed it today. It matters which party was in control when it was signed. Not meant as a shot against your point. I agree with your point.

It is sad that the content of the bill can not be debated. To the contrary. It is who signed it and what political advantage can be gained.

In the end, it does not matter what "side" you are on.

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln