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From what I can find: A bank will make a loan, after 120 (or 180) days of no payment the loan becomes "charged off", this means it's now tax-exempt The pu

From what I can find: A bank will make a loan, after 120 (or 180) days of no payment the loan becomes "charged off", this means it's now tax-exempt The purpose of making such a declaration is to give the bank a tax exemption on the debt Then a debt buyer will purchase the value of the debt for a percentage A debt buyer is a company [..] that purchases delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. with the pricing generally being Depending on the age and history of the debt, a buyer typically pays between 3 and 16 percent of the face value of the debt. Does this mean that the debt buyer than becomes in possession of the value of the debt for tax purposes, even after it has been charged-off by the company that initially granted the debt? or do they become in possessions of the amount paid (eg: buying $1,000 debt for $100, do they now own $1,000 for tax or $100?). Wikipedia isn't clear. quotes taken from: http://en.wikipedia.org/wiki/Debt_buyer http://en.wikipedia.org/wiki/Debt_buyer http://en.wikipedia.org/wiki/Charge-off http://en.wikipedia.org/wiki/Charge-off

mediaman 14y ago
Typically, the charge-off would be the difference between the original face value of the debt and the price it was sold to the debt collector. The debt collector's tax basis is the price they paid for the debt. If they fail to collect the debt, there is a net loss equal to what they paid for the debt. This tax loss can be set against other debts that are recovered (profits). If the full face value of the debt is recovered, the debt collector owes tax on the difference between their basis (what they paid for the debt) and the amount collected from the debtor. Of course, this profit is set against the losses on the remainder of the debt portfolio, so the net tax owed is the cumulative debts collected above the basis, less the loss on uncollected debt.
lifeguard 14y ago
The debt can be accounted for at least two ways: Full value and take an income loss on not collecting all of it. Income of what amount you DO collect. So in a sense occupy will have a tax shelter on their hands :-)

mediaman 14y ago

Typically, the charge-off would be the difference between the original face value of the debt and the price it was sold to the debt collector. The debt collector's tax basis is the price they paid for the debt. If they fail to collect the debt, there is a net loss equal to what they paid for the debt. This tax loss can be set against other debts that are recovered (profits). If the full face value of the debt is recovered, the debt collector owes tax on the difference between their basis (what they paid for the debt) and the amount collected from the debtor. Of course, this profit is set against the losses on the remainder of the debt portfolio, so the net tax owed is the cumulative debts collected above the basis, less the loss on uncollected debt.

lifeguard 14y ago

The debt can be accounted for at least two ways: Full value and take an income loss on not collecting all of it. Income of what amount you DO collect. So in a sense occupy will have a tax shelter on their hands :-)