New Tax Legislation

Smart Money has a good summary of recent tax legislation changes for all of our 2007 tax returns.

Some will be affected by the temporary un-stupiding of the AMT, a financial bomb waiting to hit the government, but one which they refuse to permanently fix, because it would require raising other taxes to make up for the lost revenue.

The tax change that really started me scratching my head though, was this:

"Cancellation of debt (COD) income, which occurs when a lender lets you off the hook for all or part of the money you owe, is taxable unless a specific exclusion makes it tax-free. The Mortgage Relief Act retroactively creates a new exclusion for qualifying cancellations of home mortgage debt in 2007 through 2009. Under the exclusion, a homeowner can have up to $2 million of federal-income-tax-free COD income from "qualified principal residence indebtedness," which means debt that was used to acquire, build or improve your principal residence and that is secured by that residence."

To summarize - if your mortgage lender forgives your debt, up to $2 million, you aren't immediately taxed on it.

I'm puzzled. I thought the mortgage crisis was driven primarily by poor-credit individuals who didn't understand the risks of adjustable mortgages well enough. When I think of poor-credit, and lack of financial sophistication, I don't think of $2 million in debt. Though I don't agree with my tax dollars going to someone who was trying to buy a small house for his family, and got in over his head, I'm COMPLETELY AND ANGRILY opposed to my tax dollars going to someone who bought a $1.5 million condo in Miami during the real estate boom, and is now stuck because it's only worth $1.1 million. Tax charity for those who should know better is just a flagrant abuse of power.

It's an election year people! Write, email, or call your elected officials and tell them you've had enough of the middle class funding the rich.