Looking In the Mirror
Author, Speaker, Inventor and Consultant, Max Jaffe, CPA, helps individuals keep more of the money they make
Editors note: Max Jaffe is a regular guest contributor to this blog.
Have you ever done something you thought was a great idea, but it ended up not being so great? I bought a condominium in 1983 for $80,000; at the time inflation was in the double digits, so the great idea was that if I buy the house today, it will be less expensive than if I wait a year. This is just the opposite of a deflating economy, where no one buys anything.
I was too cool; my condo was in the swinging-singles area of Dallas, it was three stories, snuggled away in the trees and a living room looking out on the trees and over the pool.
About five years later the apartments across the street were condemned and turned Section 8. Who knew? The value of my property plummeted. At the time I was paying a fixed rate of 12 ½ % on a 30-year mortgage. Around 1990 mortgage rates started coming down to around 8% for a 30-year fixed mortgage. I called the mortgage company, and they were unwilling to refinance. Well…I could refinance, it was just that I would have to kick in $40,000 because they were only willing to lend around $40,000 because the value of my condo had dropped to about $50,000. The only way out of my mortgage was to sell the house.
So I did…for $54,000!! With around $5,000 in closing costs, I wrote a check to the title company for $30,000…and I’m the one selling, NOT BUYING.
Uncle Sam wants your money
Here’s the rub: at the time, a seller could NOT deduct the loss on a home. However, I had to sell stock in order to come up with the difference between the value of my mortgage, $77,000, and the selling price of $54,000, plus of course, the closing costs. I didn’t have $30,000 in my bank account. So, I had to sell stock in order to come up with the difference. Yes, you guess it!! Although I couldn’t deduct the loss on the house, I still had to pay capital gains taxes on the gain from the sell of the stock.
Some of you are plenty angry about the fact you are diligently paying on your mortgage and some people who knew they couldn’t afford their houses when they bought them are walking away from those houses, and I might add, trashing those houses on their way out.
Some of you are upset that Timothy Geithner, the current Treasury Secretary, didn’t pay all his taxes and is in charge of the IRS. Some of you out there are chapped at the fact that Tom Daschle, President Barrack Obama’s pick for Secretary of Health and Human Services, didn’t pay all of his taxes either.
If you find yourself in any of these groups that are unnerved about what is going on the country, take comfort in the fact that while you may make sacrifices, you pay your mortgage monthly, you pay your taxes, and therefore you honor your commitments. I find this to be a much better position than having to face yourself in the mirror I hadn’t met my obligations. Give yourself a gold star!