Fix the Tax Code Friday: Foreclosures

So following up on yesterday’s post about the proposed tax relief for debt cancellation related to foreclosures, I wonder, “Is it fair?”

Today’s Fix the Tax Code Friday question is:

Should Congress offer tax relief to those who are affected by the housing market (those in foreclosure)? Should Congress offset the lost revenue by limiting capital gains benefits to those who convert second homes to primary residences? Can you think of any other ways to address the subprime mortgage fiascoes and the decline in the market?

Comments

  1. Another Tax Geek

    No, it’s not fair. The COD income received by borrowers is harsh, but not inappropriate, and there is a symmetry in the bad debt deduction taken by the irresponsible lender and the COD income reported by the irresponsible borrower.

    While the COD income is certainly harsh, the gov’t approach is worse IMO, in that its reducing the penalty for a poor decision. Making others (vacation home owners) pay for it is even more egregious. I don’t own a vacation home, and it looks like owning one may become significantly less attractive.

  2. Kelly

    ATG –
    Exactly. I think that’s what’s getting lost here. Deductions must have corresponding income. The lenders are definitely taking these deductions for “bad debt” so there should be corresponding income.

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