Absurd set house lost and therefore tax debtor

Around 300 families currently lose their homes every day because they could no longer pay their mortgage. Often, the debt exceeds the purchase price of the home because interest on late payments and legal costs are piling up on top of the principal debt itself.

Because property values have crashed as a result of the housing crisis, buyers usually can't be found during the foreclosure process. In this case, the bank takes over the property at a value that is sometimes only 50% of the original purchase price. The debt mountain that goes beyond this "surcharge value" is something the debtor may drag with him for the rest of his life, even after losing his home. Consumer insolvency proceedings such as z.B. in Germany, with which the debtors could at some point achieve a discharge of residual debt, does not exist in Spain.

As a solution to the problem of lifelong debt, consumer protection associations called for "dación en pago", i.e. the possibility for mortgage debtors to transfer their home to the bank, thereby fully repaying their debt to the bank.

But this option has tax consequences that many are not even aware of, and that suddenly makes those who have lost their home, usually with great economic losses, tax debtors.

In principle, the transfer of the property constitutes a sale, in which, on the one hand, the so-called plusvalía is incurred. This tax does not depend on the actual acquisition and sale value, but on the evolution of the cadastral values of the share of the land during the period of ownership, and is payable to the municipality.

Like any other real estate transaction, the transfer to the bank may also have an impact on income taxes. The income tax due on a real estate transaction is based, in a highly simplified manner, on the difference between the disposal value minus the acquisition value. The bottom line is taxable income.

An example will illustrate the tax trap: Suppose a mortgage borrower bought a property a few years ago for 192.000 euros and financed at 100%. In the first years he has 20.000 euros repaid, leaving a remaining debt of 172.000 euros was when he became unemployed, and could no longer afford the monthly installments. Due to interest on arrears and procedural costs, the total debt in a short time is 220.000€ increased. If the debtor now transfers the property to the bank, is exactly this amount of 220.000€, which is equal to the forgiven debt, the value at which the debtor sells the property. If you subtract the acquisition value of 192.000€ off, remains a "profit" resp. "asset growth" of 28.000€, on which income tax is due. In other words, the family is homeless, the debt to the bank is gone, but the 20.000€ that the family spent on repayment are lost, and yet the family has to pay 28.000€ "income" tax.

To mitigate this effect, the Spanish government has enacted a law. But only a vanishingly small number of those affected will benefit from it. The law does provide that in the case of "dación en pago" the plusvalía is to be borne by the bank, and that the "capital gain" is tax free, but only if the debtor meets certain criteria. For example, the purchase price of the apartment must not exceed certain values, it must have been the first residence, the debtor must be unemployed, or the monthly installment of the mortgage must have been at least 60% of the family income. In addition, the mortgage may not be additionally secured by z.B. be secured by the guaranteeing relatives, unless they too are already living in ruinous financial circumstances. The debtors who give their home to the bank for repayment thus only enjoy the "tax benefits" if they are already hopelessly ruined and the taxes would probably never be collected anyway.

It is absurd that people who lose virtually everything become tax debtors through accounting calculations when in fact they have incurred bitter losses. Actually, the problem could be solved quite simply by recognizing the accrued default interest and court costs as deductible expenses. Because these costs were indispensably necessary, in order to achieve from the bank the high clearing price for the trade-in of the dwelling at all.

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