[quote=ucodegen][quote UCGal]
They bought in Nov 1991 for $169k.

Somewhere along they way they pulled out an additional $390k (on top of their original loan.)

Amount owed: $582,589.15
Back to the bank today when no one would pay $350k at the steps.
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Here is the kicker. Because the Home Equity Loan is generally considered for home improvement, the proceeds of the loan is not taxable as income. (390K virtually tax free)

The interest on the loans was tax deductible.

The loss of the property due to foreclosure has the potential to be deducted against future income – possibly at the value that the house was appraised at when they took out the Home Equity Loan.

The only counterbalance would have been the banks 1099 for loan loss forgiveness.. but that has been waived away for a while.
swwwweeeeettttt (CS) <-- no way related..[/quote] Yes, home equity loans were historically (prior to the year 1995) assumed to be for home improvement, and that is what the IRS tax deduction is based on. The guidelines are very clear (or at least as clear as anything the IRS writes): interest can be deducted only on the proceeds of the loan that are applied toward *substantial* home improvements: adding square footage/living space, building a garage, finishing your basement or attic, etc. Faux painting your living room, installing an Old English bar, spending $30K on electronics and velvet blackout drapes for a media room - these don't make the cut. That being said, it's not surprising that people assume that all home equity loan interest is tax-deductible. No less a trustworthy source than the Big Banks told us so, over and over on the public airwaves. By the mid-nineties, they were spending billions on advertising, pushing HELOCs on a greedy and gullible public, and even offering helpful suggestions on how to spend the money, should their customers not prove to be creative in that area. Plasma TVs (remember the mid-90s prices!), hot tubs, luxury vacations, expensive cars, even jewelry! A couple of the megabanks began offering a debit card with the loans, touting it as a convenient way to always have money available for those impulse purchase moments: "Use it for getaway weekends, for gifts, furniture, clothes...even for groceries." That's when I realized just how much trouble we were in: when the bankers we were supposed to trust were recommending that we use the equity in our homes to fill our refrigerators. And it would all be tax deductible. Is this a great country, or what?! Well, at least, it would be if the bankers ran the IRS.