But… We Want More!!! Give Us More Tax Breaks!
I feel we have become a nation of people with our hands out waiting for the next free ride. We not only want handouts, we expect… now demand it! An article in the Wall Street Journal (“More Loan Forgiveness Sought“) has me flabbergasted. The article, written by Arden Dale, highlights a group that is lobbying to get tax breaks for people that used their homes as an ATM. Yes, we’ve already gotten tax breaks for loans that were forgiven for owners who finance/refinanced to buy or fix up their house. Now, this group is after tax breaks for all, regardless of why someone refinanced.
Their main argument is a scenario: a woman that has become a single mom after losing her husband to a long-term illness. She may have refinanced to pay off medical and other bills, but now cannot afford her increasing mortgage payment. Ok, yes, I give them props for coming up with a scenario that pulls at my heart strings, but come on now… seriously. What are we thinking? Aren’t we supposed to be telling people, “Stop! Don’t do this anymore… you’re house is not an ATM!” I know the whole foreclosure thing sucks, yes, I get it. However, every way you look at it, loan forgiveness in these instance is taxable income.
Here are some excerpts from the article for you to digest yourself:
The Mortgage Forgiveness Debt Relief Act of 2007 gives a tax break to a homeowner when the mortgage lender forgives debt used to buy or improve a home. Now, a group is lobbying to extend those breaks to cover money received in a mortgage refinancing that is later used to pay medical bills, education loans or other nonhome costs. . .
Mortgages headed to foreclosure are often adjustable and require new payments that are simply unaffordable to a homeowner, the consortium wrote in its letter. Many other troubled mortgages exceed the value of the homes securing them. Often the only way to avoid foreclosure is to reduce principal of the mortgage loan — a move that Federal Reserve Board Chairman Ben Bernanke has encouraged.
“It’s ironic if on one hand the Fed is saying ‘modify these loans by reducing principal,’ and then we’re going to hit the borrower with a large tax bill right when they’re most vulnerable,” said Mr. Eggert, who isn’t affiliated with the group.
Ms. Geier said she supports the current law. “Debt that is not used to acquire, construct or substantially improve the home, but rather is used for purposes unrelated to the home, is plain vanilla personal consumption, which should be funded with after-tax dollars under an income tax,” said Ms. Geier.
A solvent taxpayer who pays medical expenses with a credit card and then has that debt forgiven has what is known as taxable income, Ms. Geier noted. “There is no principled distinction between that person and one who taps home equity to pay for the same medical expenses,” she said.
