[FoxV]

This article has meny issues worthy of discussion in it:

MEGA-STORM SIGNPOST

however I was particularly interested in this passage
$this->bbcode_second_pass_quote('', 'T')his is the new social group: bankrupt homeowners. The IRS has a solution for them. If the bank forecloses, takes a big loss, that loss becomes a gift for the abandoning homeowner, subject to income tax. And that tax is not forgiven on passage through bankruptcy.

[FourOfSwords]

FoxV, why would you be interested? You live in Canada like I do, and our bankruptcy laws are COMPLETELY different from the States.
I've just gone through bankruptcy, and believe me its NOT what you want to do unless you absolutely have to.
Pertaining to your post, if you were a homeowner, and you saw the economy starting to 'go south' I would immediately sell my home(if I had one) Unless your home is your survival retreat . I'm not too sure you would immediately 'go to jail, go directly to jail, dont pass go'...
Of course so many sheaple have so much money and so much of their 'lives' tied up in their house/mortgage they would keel over from a heart attack if this came to pass. Too bad there are soooo many lemmings running over this same cliff...
Run lemmings run!
Alex.

[gg3]

The lack of clarity in that passage is exactly what happens when people do not write in complete sentences. "take a big loss" does not say who takes which loss. But in any case, here's how I read that passage:

The bank forcloses on the homeowner. The bank writes off the loan as a loss and allows the homeowner to keep the house. Suddenly the homeowner receives the equivalent of a multi-hundred-thousand-dollar gift. This of course is taxable. Now the homeowner can't possibly pay it all off quickly, and it's not in the IRS' interest to drag them off to prison, so the IRS does what it usually does with big bills for back-taxes: allows the individual to pay them off in monthly installments, like any other regular bill.

In other words, it is as if the homeowner has just had his mortgage payment reduced to pennies on the dollar, all without causing "real estate values" to drop. Meanwhile, if the bank takes a bad enough hit from writing off a ton of mortgages, that's OK, the Feds will bail out the bank using the tax dollars recycled from the bankrupt home owners.

Very clever, if that's what they're up to. However, I'm skeptical of the source, and dalso skeptical of my interpretation of it.

[smallpoxgirl]

This could play out any number of ways.

If a debt is forgiven by a lender who has decided that it is uncollectable, then it is considered a gift and is subject to income tax. If a debt is discharged in a bankruptcy, it is not considered a gift and is not subject to income tax. Back income taxes can, under certain circumstances, be discharged in a bankruptcy, but there are more rigid limitations (various time limits, and it can't be income you were trying to conceal from the IRS basically.)

So...if the bank foreclosed and was still trying to collect the excess, it could be discharged in bankruptcy. If the bank had foreclosed and forgiven the excess, you'd have to jump through some hoops to get rid of the tax debt. If the bank hadn't yet foreclosed, you could definitely get rid of the debt in a bankruptcy, but unless you paid up, you probably wouldn't get to keep the house.