| What Do You do With a Worthless Mortgage? |
|
|
|
|
|
drkenrich
New Member
Cash: $ 0.65
Posts: 3
Joined: 27 Apr 2011
Location: Los Angeles, CA
|
| What Do You do With a Worthless Mortgage? |
 |
|
There are three options for a worthless mortgage: 1) abandonment; 2) bad debt write off and; 3) donation to a charity. The difference between 2 and 3 deals with tax refund amount and the time it takes to complete it.
Bad Debt Write Off - The IRS limits your to $3,000 per year until the total is written off. Each year’s tax refund is based on that year’s tax bracket which can change. The key is you can take the entire loss amount but you may have to do it over 20+ years (i.e. a $60,000 mortgage will take 20 years).
Donation to a Charity - The IRS limits your deduction to 30% to 50% of your Adjusted Gross Income (ADI). However, the IRS may limit you to the appraised value of what similar mortgages are selling for. If your’s is worthless and you donate it. An appraiser can only go on actual sales of other mortgages. That $60,000 may be appraised at $45,000. If your ADI is $50,000 your tax refund can be 2 to 3 years instead of 15 years. The tax refund difference is between $1,500 to $12,500 (25% tax bracket) or $900 to $7,500 (15% tax bracket) in the first two years.
The real difference is how much is the vastly shortened time frame worth to you.
One more risk is that if a charity ends up selling the mortgage to someone else for any amount ($100 just to get cash for it) within 3 years of the donation, you will have to file an amended return and pay back the excess refund you got. Make sure you know how the charity will handle the mortgage, especially if there is currently minimal value on it’s income. deleted is one charity that accepts almost all mortgages regardless of value and will hold them for the 3 year IRS time limit.
For those bent on flaming promotional posts, I'm sorry for your lack of maturity. This is a promotional post, but it is also informative and open for questions and further discussion. Any questions regarding IRS regulations will be answered. My purpose is to educate, not argue.
We accept items no other charity accepts - Worthless mortgages and useless timeshares. Donors get up to 10x more back on their taxes. http://www.communityhealthtraining.org/Timeshares/
|
Wed Apr 27, 2011 10:17 pm |
|
|
No-Brainer
Senior Member
Cash: $ 66.65
Posts: 907
Joined: 29 Dec 2005
Location: Oregon USA
|
You missed the best option in my book, sell it to a speculator. I have been on both ends and it worked equally well.
US Click Ads
Pathway to Income
|
|
Thu Apr 28, 2011 12:55 am |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
| mod's note |
|
|
Would you care to offer proof that you're a charity?
Posting your IRS Forms 990 and 1023, which 501(c)(3) regulations require a charity to make available for public inspection, would be entirely acceptable.
Don't post links to your website in the post body. Even if you are a legit charity, which I doubt, you're not exempt from forum rules.
|
|
Thu Apr 28, 2011 7:10 am |
|
|
drkenrich
New Member
Cash: $ 0.65
Posts: 3
Joined: 27 Apr 2011
Location: Los Angeles, CA
|
| Sorry you are so sceptical |
|
|
I can provide copies of our 990 on an individual basis, but I'm not about to post it here. That would be overkill and unnecessary to the topic.
There is a better way to determine our IRS status. If anyone wants to go to the IRS website http://www.irs.gov/app/pub-78/ and type in our correct name as Community Health Training, Inc. located in La Habra, CA they will find us listed in the correct alphabetical order by the IRS.
We are not a 501(C)3 charity, but designated as a private foundation. As such donors are limited to a maximum deduction for donations to us of no more than 30% of their Adjusted Gross Income (AGI). The only difference is that up to 50% of AGI can be deducted for donations to a 501(C)3 organization. Specifically that means that with an AGI of $100,000 per year a donor can donate $50,000 to each of us, but only 30% of our donation can be deducted from their income. The higher limit to the 501(C)3 allows them to take an additional $20,000 as a deduction. However, the 50% total limit limits the total deduction. Deductions are not limited according to time donated, type of organization, amount or any other filter. It's just that once the first filter is used by the most limited criteria, additional deductions can come from other categories until the full 50% is used. There are 20% and 40% filters, too. The donor giving all 100% of his income would list all of them on the tax return. The IRS would make sure each category reached their limit in succession and the total of 50% was still not exceeded.
How does that apply to us and the above donor? Let's say the donor want's to donate an $80,000 mortgage that is in a junior position behind a large first mortgage that is going into foreclosure. He, also, has other charities he supports to the tune of $20,000 cash per year. On his tax return he would list the mortgage donation at $30,000 plus the cash donation of $20,000 for the total of $50,000 donation deductions for year 1. With the 5 year carryover rule, he would do the same thing for the next two years and be done with it all. Ultimately, the difference in refund receipts would be $80,000 x 25% = $20,000 in three years versus having to limit a bad debt write off to $3,000 per year and take 27 years to get the same amount from the IRS. Please understand that I'm not considering differing tax brackets as income changes over time, appraisal value discount, or cost of money over time. These are simple numbers for illustration.
Now, I'm sure this was important to the understanding of tax donations and how to use the tax code to gain a faster and larger refund through donation than as a bad debt write off. If you would like to question the law, instead of personal bias, I'd be happy to educate you and others for your own benefits. 
We accept items no other charity accepts - Worthless mortgages and useless timeshares. Donors get up to 10x more back on their taxes. http://www.communityhealthtraining.org/Timeshares/
|
|
Fri Apr 29, 2011 1:20 am |
|
|
drkenrich
New Member
Cash: $ 0.65
Posts: 3
Joined: 27 Apr 2011
Location: Los Angeles, CA
|
|
|
|
quote:
Originally posted by No-Brainer
You missed the best option in my book, sell it to a speculator. I have been on both ends and it worked equally well.
A great idea, with one small flaw. Let's review what a worthless mortgage is and if any speculator would want to buy it.
Let's say the house is only worth $250,000 and there is a $280,000 first mortgage that is currently going into foreclosure with a probable closing date 30 days from now. The second mortgage we are considering here for the speculator is a $50,000 2nd mortgage. When the current foreclosure goes to the foreclosure auction block the first mortgage holder will bid their $280,000 bid which means they will shuffle the paperwork and get the deed AND if anyone else wants the property they will have to pay off the 1st plus at least $1 to out bid them.
A really savvy speculator saw this opportunity and bid the extra dollar and got ownership of the $50,000 2nd mortgage. He was then able to watch as the sheriff informed him that if he wanted the property all he had to do was come up with $280,000 + $1. Then he could fix it up and sell it for $250,000 on the open market. Of course if he didn't want to spend the extra cash, he has the legal right to write off the $1 it cost him for the bad debt. After all, the IRS says two things. 1.) that only the actual cash he paid for it is the value of the mortgage since that establishes value within the 3 year window of valuation they use for comparison, and 2.) he can't take any more than he paid because that's all he invested. He can't take someone else's loss as his own.
As soon as the original owner sold it for $1 that person can proceed to write it off as a bad debt over the next 17 years at $3,000 per year. However, if that owner had donated it they could have written it off as a donation at 30% of their AGI for the next 5 years. If their income was $50,000 they could write it off at $15,000 per year and be done in 4 years instead of 17.
Which do you think is the smarter, the speculator or the original owner that decided to donate it? 
We accept items no other charity accepts - Worthless mortgages and useless timeshares. Donors get up to 10x more back on their taxes. http://www.communityhealthtraining.org/Timeshares/
|
|
Fri Apr 29, 2011 1:38 am |
|
|
coaster
Senior Advisor
Cash: $ 1357.20
Posts: 6683
Joined: 11 Oct 2005
Location: Wisconsin
|
Thanks for the information and the link. We get an awful lot of spam here and a lot has to be done on first impressions. Neither your post nor your website made a very good first impression .... you might want to think about that .... but after finding your organization listed with the IRS, along with the explanation (and a delayed and vague memory recall of something I read about the sort of thing you're doing), you most certainly have the full benefit of any doubt that remains.
|
|
Fri Apr 29, 2011 6:21 am |
|
|
|
