Seattle Bubble Forum Archive

http://www.nytimes.com/2008/05/30/business/30tax.html

The summary is that if JohnDoe bought a "Vacation" house for 300K and now can only sell it foreclosed at 160K, he still owes about 30K in taxes to Uncle Sam on the 140K "debt forgiven by lender" and hence classified as income.

The article goes on to describe two hmmm misinformed individuals (aka greedy "investors") who bought an new investment 535K house (doesn't say what the mortgage on their primary residence was...) on get this, a 65K annual income.

Note that the penalty only applies to people who purchased an "investment" home and are facing foreclosure on that home. This does not apply to foreclosure on a primary residence.

Oh boy, reality is not only going to hit home, its going to crash on the roof and bring down the existing house with it! I only hope all the vulture investors from Calif get hit hard with this tax, when they try to sell their "distressed" properties in the Arizona/Nevada/Puget Sound region.

After this nobody is going to buy a second house as an "investment". Damned greedy idiots! stop thinking of your home as a piggy bank.

Investment homes are often recourse mortages while primary residences are often non-recourse mortgages. If they have any other assets (read other investment properties) the earlier defaultees can go after the remaining assets.

Wow! I knew that there was new legislation on relieving taxes on forgiven debt on foreclosed properties that are primary residences, but I hadn't thought about how people would be affected by defaulting on investment properties.

As somone who is attempting to keep astride of of the consequences and developements of the deflating bubble / credit crunch or whatever you want to call it, I am constantly surprised by the seemingly ever widening spread of effects. I suspect anyone expecting a quick turn around with the financial sector of our economy is in for a rude awakening. There are going to be alot of hurting people when this all done and over with.