TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, January 28, 2011

The Mortgage Forgiveness Debt Relief Act of 2007

Curt Hochbein (J.D. 2010, Capital) has published Comment, Mortgage Forgiveness Debt Relief Act of 2007, 38 Cap. U. L. Rev. 889 (2010). Here is part of the Conclusion:

Taxpayers who purchase homes are taking the risk that one day they may not be able to afford their mortgage, that the value of their home may decrease (however unlikely this may be), and that if both occur, the taxpayer may get less back on the sale of the house while remaining personally liable to the bank for the outstanding debt. However, where the bank releases the taxpayer from liability, the taxpayer realizes a gain in assets that otherwise would be used to secure the debt. If the taxpayer is not bankrupt nor insolvent, then he or she should have to pay the resulting tax liability immediately because, by definition, he or she can afford to do so. Simply because “so many homeowners are losing their homes” does not mean that the government should provide “temporary relief” by excusing the homeowners from their tax liabilities. Such a provision does not comport with a “common sense” reading of § 108.

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The author is absolutely correct, as a matter of tax law. But the Act was not really a tax statute -- it's a form of social welfare or economic stimulus dressed up, as are so many other items in the Code, in tax clothing.

How else would the author explain the allowed 'backdating' of disaster losses or the recent Haiti earthquake contribution provision, to name a couple that come immediately to mind.

Posted by: eli bortman | Jan 30, 2011 4:33:15 AM