I once asked an accountant why a homeowner had to face a surprising penalty from the Internal Revenue Service after losing his job and his home because of a downtown in the economy. When the homeowner had to sell his home for less than its purchase price (known as a short sale), the bank also forgave a portion of the mortgage. The amount forgiven, $15,000, showed up as taxable income on the homeowner's tax return. According to the accountant, the initial intent of the law was not to further penalize distressed borrowers. The initial idea was to find a way to account for parents and friends who provide seller financing for their children and associates and then simply forgive the debt once the kids have settled in to the new home. Regardless of the roots of mortgage forgiveness pe...
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