A Gift from Desperate Legislators to Irresponsible Borrowers
Hey folks, you can all write bigger checks to the tax-man in coming years in order to fund the tax break just handed to irresponsible borrowers by our deperate-for-votes legislators.
Here's some of what happened yesterday in congress:
Mortgage Forgiveness Debt Relief Act of 2007: Agreed to the Senate amendment to H.R. 3648, to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income--clearing the measure for the President;
What does that mean? It means if you borrowed a big pile of money from the bank, and you can't afford to pay it back, and the bank, rather than foreclose on you, forgives some of that debt -- it's no longer treated as income. This also goes for refinancing.
Let's get this straight. You borrow money for a big, fancy house you can't afford. Someone turns around and says "no, you just keep this chunk that evaporated because you paid too much, no need to pay me back..." and that's not "income."
You take $30k from the bank in "equity" to spend on junk, and the bank turns around and hands that to you, free and clear, somehow that's not "income."
It looks like it applies not only to owner occupied whole-home mortgage givebacks, but to flipper properties, big kitchen remodels, and land purchases: `(2) QUALIFIED RESIDENTIAL INDEBTEDNESS-
`(A) IN GENERAL- The term `qualified residential indebtedness' means indebtedness which--
`(i) was incurred or assumed by the taxpayer in connection with real property used as a residence and is secured by such real property,
`(ii) is incurred or assumed to acquire, construct, reconstruct, or substantially improve such real property, and
`(iii) with respect to which such taxpayer makes an election to have this paragraph apply.
`(B) REFINANCED INDEBTEDNESS- Such term shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (A)(ii), but only to the extent the refinanced indebtedness does not exceed the amount of the indebtedness being refinanced.
Your proof that this is a bad idea is that the National Association of Gimme My Six Percent is releasing PR about how this is a peachy measure designed to protect "the American dream."
Of course, maybe we won't have to pay for this at all. Maybe it's free. I didn't see a CBO estimate on what this would cost attached to either bill, so it's probably best to assume it costs nothing.