Quote:
Originally Posted by jmen24
The reason they hold on to the properties is because it shows a Capital Loss on the books. A Capital Loss can be applied directly to the tax portion of a Capital Gain. It all has to do with liabilities. If they sell the house, great. If they do not sell the house, great. They make out in both situations, because they are holding or selling a house well below the money invested, its a loss either way and can be used to offset the Capital Gains Tax either way. That is how you can still show a profit even though you are holding a huge loss, not only are you lowering your tax burden, but that money then becomes profit along side the Capital Gain for the year or quarter.
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How can the bank lock in a capital loss if they haven't sold yet? Isn't it similar to an individual - I have to sell a stock below what I paid to offset any capital gains. They may be able to book a reserve for bad debt expense equal to the difference between the mortgage note and the current market value of the property, but I don't see how they can record a capital loss.
I really don't know much about how the books work for banks so if you can further explain that would be great.