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I am 70 yrs old. Still working full time. I have tryed for…

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I am 70 yrs old...
I am 70 yrs old. Still working full time. I have tryed for months to refinance my house but I am upside down, have good credit, work, etc etc no one will touch it. I have decided to walk away and stop throwing good money after bad. I know this will go on my credit for two yrs. How will it affect my credit cards? I do not have a second on the property
Submitted: 8 years ago.Category: Tax
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Answered in 10 hours by:
8/2/2009
Tax Professional: Merlo, Accountant replied 8 years ago
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello monkey,

Assuming that this is your primary residence, walking away from your payment obligations and allowing the home to go in to foreclosure will at least have no tax consequences to you, if the foreclosure occurs before the end of 2011.

Normally when you have a debt that is cancelled or forgiven, even though you may walk away from the obligation of the debt itself, you are still liable for income tax on the amount of the debt which was forgiven. In the case of a home loan, this can often be quite substantial.

However, due to the current mortgage lending crisis, Congress has passed temporary legislation which allows taxpayers who go through a foreclosure on their primary residence to exclude the amount of that debt from their taxable income. This exclusion applies to foreclosures occuring up through the year 2011.

From a credit standpoint, any negative credit incident can legally stay on your credit report for 7 years, not just 2 years. So obviously this will have some impact on your future abiity to access new lines of credit.

As far as credit cards which you currently hold, your line of credit with those companies is always subject to review. Most credit card companies will periodically review your credit report on an average of once each year. If at the time of their review they find that your credit score has dropped significantly, they may choose to either lower your current line of credit or to cancel your card entirely. Unfortunately that's all part of the drawbacks to having a poor credit score.

But on the other hand if you can no longer afford to make these payments, then you have to weigh the benefits of walking away from the home obligation compared to the negative aspects of having your credit score lowered. In the worse case scenario, if your existing credit cards were to be cancelled, you can always obtain other credit cards which require you to deposit money up front to cover the line of credit they extend to you.

But the chief advantage here that I think you need to consider is the fact that going through this foreclosure now, or sometime before the end of 2011, will allow you to escape the burden of paying tax on that cancelled debt. Considering that this could be a considerable amount of tax that you might owe, that may far outweigh the possible negative consequences of having this put on your credit report.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you monkey, and let me know if you have more questions.



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Customer reply replied 8 years ago

Thank you is there anything I need to do for the mortgage co. As to notification etc. or just say nothing at this time and walk?

 

 

Tax Professional: Merlo, Accountant replied 8 years ago
Hello again monkey,

There is nothing that you are actually required to do. If you simply discontinue making the payments on the home, then the bank will at some point finally start the foreclosure proceedings. In the meantime, you may as well go ahead and continue to live in the home, as it will save you money on renting another place or at least buy you some time to find another place to live.

You may want to notify the bank of your intentions to eventually walk away from the property, as it may at least cut down on the phone calls you are sure to start receiving if they have advance notice of yur intent. They may also at that point want to offer you some other refinancing options which they did not make available to you before, so you may want to contact them just to see what they have to offer.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you monkey.

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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