Glad to hear that mortgage lenders are going to have to pay hefty settlements because of their poor business practices during the housing boom? Would you be surprised to learn that these settlements are considered “business expenses”, and as such are tax deductible? [Thanks L!]
WASHINGTON (AP) — Consumer advocates have complained that U.S. mortgage lenders are getting off easy in a deal to settle charges that they wrongfully foreclosed on many homeowners.
Now it turns out the deal is even sweeter for the lenders than it appears: Taxpayers will subsidize them for the money they’re ponying up.
The Internal Revenue Service regards the lenders’ compensation to homeowners as a cost incurred in the course of doing business. Result: It’s fully tax-deductible.
Critics argue that big banks that were bailed out by taxpayers during the financial crisis are again being favored over the victims of their mortgage abuses.
“The government is abetting the behavior by not preventing the deduction,” said Sen. Charles Grassley, R-Iowa. “The taxpayers end up subsidizing the Wall Street banks after the headlines of a big-dollar settlement die down. That’s unfair to taxpayers.”
The settlement has had a number of detractors who have said that the amount the lenders have to fork over is too small. When you consider how much this will reduce the lenders tax liability, it’s clear that this “legitimate business expense” makes the penalty even smaller.