One good thing Bush (and Congress) finally did (12/20/07) is repeal the collection of income tax on "cancellation of debt (COD) income" -- phantom "income" that the taxpayer never actually received.
Example: we've been encouraging our clients caught up in the mortgage meltdown to file bankruptcy in order to avoid having to pay income tax on hundreds of thousands of dollars of mortgage deficiencies they never pocketed. Having to explain to clients that they owe income tax on money they never saw has been, shall we say, challenging.
Rather than encourage short sales we've discouraged them due to COD income tax.
Example: my clients, John and Jane Doe -- have a house with an insane mortgage they cannot pay, after their ARM readjusted, and the monthly payment went from $2500 to $5000 overnight. They make a decent income but that's just too much. Zero credit card debt, cars paid for.
They wanted to do a short sale, and I advised them to at least explore this, as I was hoping that Congress or Bush would repeal COD on short sales, but the real estate lawyer at my office advised them to file as he is not an optimist, as I am. We haven't filed yet, so will revisit the scenario this week.
I need to look at some other ones, I am fairly certain that there are at least two that are in the process of preparation that won't need to be filed after all, assuming they can find someone to buy their house at a loss, and the lender to agree that a paying borrower, even at a lower price, is better than a bank owned house.
I am cautiously optimistic. Fewer bankruptcies is fine by me, I have far more work than I can handle. It should be better for the economy as a whole, if potential homebuyers can pick up distressed properties at a lower price rather than have row after row of empty bank-owned homes. |
