Foreclosure: Higher Taxes For Sale Of Vacation Houses

September 28th, 2007 | Tags: Foreclosure

The authorities are trying to augment revenue to help foreclosure besieged house owners. The House Ways and Means Committee has unanimously agreed to impose higher taxes on sale of vacation houses. A Democrat drafted the resolution. It will be more difficult for those selling their second house to exclude profit to the tune of about $5000,000 from capital-gains taxes. In this way the target is to raise $2 million in extra taxes in the next ten years.

The focus is on the tax being charged for debts that have been forgiven. There is a proposal to protect borrowers from this measure wherein the amount forgiven is counted as taxable income.

The tax on vacation houses is akin to a luxury tax. The coastal and mountain resort areas will be affected by it opines Republican Johnson. Another Republican representative, Tiberi argued that it would spell permanent changes. The Bush administration had advocated these measures for three years to give relief to a passing problem. However the Bush administration surprisingly has assured that support will be given for this measure even though it is not of a temporary nature.

Industrial trade groups comprising of realtors, builders and mortgage brokers supported the provision. They were keen that house owners were protected from taxes on forgiven debts. Having already been punched by foreclosure, this tax blow is a second slap. There are still many hurdles before it becomes law.

The Realtors Association are critical that taxes on vacation houses does not do away with tax clause but rather it tightens the noose as regards the relationship between sale of houses and taxes is concerned.

So far the vacation house was the sacred cow – one cannot touch it. As per law when a married couple sells a second house, $500,000 is not counted as profit. It must have been bought five years ago and occupied for at least two years during this tenure. Amounts above this line are taxed at 15%. The exclusion amount is half for unmarried owners. To claim double tax benefits Americans often shuttle between two houses without stepping on the toes of the law.

A surprise bill will soon give tax relief from next year to forgiven debts. So far this ‘income’ was taxed at the rate of 35%. Millions waiting to join the list of foreclosures in the coming months will benefit from it.

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