Before I start – I enjoyed yesterday’s installment of the SHOE comic strip. In it the pudgy protagonist is at the gym. He asks his trainer, “What’s my best hope of getting a firm, buff body?” The trainer replies, “Reincarnation.” I expect that if I ever went to a gym and posed that question I would get the same answer!
Now, down to business.
If Congress feels sorry for the financial foolish and wants to provide some relief to individuals who overextended themselves such that they lost their homes to foreclosure (see my posting "To Err is Human. To Forgive is Taxable"), instead of forever exempting debt-forgiveness income resulting from personal residence foreclosures from federal income tax how about this –
Individuals with taxable mortgage debt forgiveness income resulting from a foreclosure on their personal residence in calendar years 2007 and 2008 can request a special no-fee Installment Agreement spreading the payment of their outstanding 1040 balance over a three (3) year (36 month) period. No interest or penalties will be charged on the balance due as long as the payments are made on time. This will be available to single taxpayers with “Modified” Adjusted Gross Incomes (AGI minus the tax forgiveness income) of $100,000 or less, and joint filers with a MAGI of $200,000 or less.
Let us say the bank foreclosed on your home in 2007. The resulting debt-forgiveness income was not exempt because you were not “insolvent”, and you must report the forgiveness as taxable income on your 2007 Form 1040. As a result you have a balance due of $5,400.00 on your 2007 Form 1040.
Under my proposal you would be able to make monthly payments to the IRS of $150.00 from April 2008 through March 2011, for a total of $5,400.00. You would not be charged the normal “user fee” for establishing an Installment Agreement, and no interest or penalties would accrue on the $5,400.00 as long as you made the $150.00 payment each month.
The Form 1099-C would have a box to check if the debt forgiveness it reports applies to the mortgage on a personal residence. Copy B of Form 1099-C would be required to be attached to the 1040. There would be a box to check on the bottom of Page 2 of the Form 1040 to indicate that the taxpayer wishes to elect the free Installment Agreement of 36 equal payments of the balance due. The first payment would be sent with the filing of the 1040, and there would be a box to check on the 1040-V to indicate that the remittance is the first payment of a qualified foreclosure Installment Agreement.
There would be no need to create offsetting income to make up for lost tax revenue, as this “relief” would not reduce the income tax due on debt forgiveness – just allow taxpayers to pay it off over time without P+I.
So what do you think?
TTFN
Now, down to business.
If Congress feels sorry for the financial foolish and wants to provide some relief to individuals who overextended themselves such that they lost their homes to foreclosure (see my posting "To Err is Human. To Forgive is Taxable"), instead of forever exempting debt-forgiveness income resulting from personal residence foreclosures from federal income tax how about this –
Individuals with taxable mortgage debt forgiveness income resulting from a foreclosure on their personal residence in calendar years 2007 and 2008 can request a special no-fee Installment Agreement spreading the payment of their outstanding 1040 balance over a three (3) year (36 month) period. No interest or penalties will be charged on the balance due as long as the payments are made on time. This will be available to single taxpayers with “Modified” Adjusted Gross Incomes (AGI minus the tax forgiveness income) of $100,000 or less, and joint filers with a MAGI of $200,000 or less.
Let us say the bank foreclosed on your home in 2007. The resulting debt-forgiveness income was not exempt because you were not “insolvent”, and you must report the forgiveness as taxable income on your 2007 Form 1040. As a result you have a balance due of $5,400.00 on your 2007 Form 1040.
Under my proposal you would be able to make monthly payments to the IRS of $150.00 from April 2008 through March 2011, for a total of $5,400.00. You would not be charged the normal “user fee” for establishing an Installment Agreement, and no interest or penalties would accrue on the $5,400.00 as long as you made the $150.00 payment each month.
The Form 1099-C would have a box to check if the debt forgiveness it reports applies to the mortgage on a personal residence. Copy B of Form 1099-C would be required to be attached to the 1040. There would be a box to check on the bottom of Page 2 of the Form 1040 to indicate that the taxpayer wishes to elect the free Installment Agreement of 36 equal payments of the balance due. The first payment would be sent with the filing of the 1040, and there would be a box to check on the 1040-V to indicate that the remittance is the first payment of a qualified foreclosure Installment Agreement.
There would be no need to create offsetting income to make up for lost tax revenue, as this “relief” would not reduce the income tax due on debt forgiveness – just allow taxpayers to pay it off over time without P+I.
So what do you think?
TTFN
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