Don’t Let the Tax Hit You on the Way Out

New York Times writer David Streitfeld’s piece this past week, “No Help in Sight, More Homeowners Walk Away,” highlights a serious dilemma in today’s housing market.  However, in reading this article, we should recall the critical piece of legislation that reversed decades of tax law to make strategic defaults so appealing: the Mortgage Forgiveness Debt Relief Act of 2007.  This act, passed under the prior administration, allows homeowners to walk away from cancellation of their debt obligations tax free, whereas in the past any such cancellation would have been taxable. Mortgage broker Steve Walsh may have thought twice before advising 60 people to walk away from their mortgages if doing so were accompanied by a hefty tax bill at year end.  Unfortunately, these costs are now passed along to taxpayers, banks and the neighbors of defaulting homeowners.  Here’s the link to the article:

http://www.nytimes.com/2010/02/03/business/03walk.html