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Fix the Tax Code Friday: Foreclosures

October 12, 2007 · 0 comments

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?

{ 2 comments… read them below or add one }

1 Another Tax Geek October 12, 2007 at 12:59 pm

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 October 16, 2007 at 3:51 pm

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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