Search Results - THOMAS (Library of Congress): "`(A) IN GENERAL- The term `qualified residential indebtedness' means indebtedness which-- `(i) was incurred or assumed by the taxpayer in connection with real property used as a residence and is secured by such real property, `(ii) is incurred or assumed to acquire, construct, reconstruct, or substantially improve such real property, and `(iii) with respect to which such taxpayer makes an election to have this paragraph apply."
So, if I'm reading this right, cash-back-at-close deals are a grey area not specifically addressed, and free gift with purchase deals (all those houses that came with cars, vacations, flat-panel TVs, etc.) get wiped clean. The defaulters who strip the house of everything before they lose it (I kid you not - I have seen ads on Craigslist saying "if you can remove it, you can buy it, but you have to get it before __" whatever date they have to be out, selling the cabinets, appliances, fixtures, etc.) and accept cars and other crap in conjunction with buying a house, they get to keep that for free. But the guy who wins a car on a TV game show has to pay tax on it.
At least cash-out refis aren't included.
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