Feeds:
Posts
Comments

Posts Tagged ‘taxes’

BREAKING NEWS:
On January 1, 2013, Congress extended an important law that exempts many homeowners from paying taxes on cancelled debts. As part of the “Fiscal Cliff” deal, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This will have a positive impact on distressed homeowners.

Cancelled Debt

If you owe a debt to someone else and they cancel or forgive that debt, the cancelled amount may be taxable.

Cancelled or forgiven debts happen every day in the Real Estate world. Short sales and foreclosures result in substantial, cancelled or forgiven debts. The Bank’s loss may be considered the home owner’s gain – a taxable, forgiven debt. A short sale happens when the proceeds of a home sale are not enough to pay off the mortgage. The bank agrees to take a “short” payoff and may cancel or forgive the shortage.

For the last 5 years, most homeowners were exempt from paying taxes on that forgiven or cancelled debt. The Mortgage Forgiveness Debt Relief Act of 2007 exempted many homeowners from paying taxes on forgiven debt. But, that law was set to expire on December 31, 2012

Taxable Income

If you owe $200,000 on your home but your sale only results in $150,000 in proceeds, you will be “short” by $50,000. You would likely need to count that $50,000 as taxable income to the IRS! In this case, you might owe and additional $12,500 in tax liability. In fact, you may owe this tax even if your house is foreclosed if it results in a shortfall to the bank.

Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 exempts many home owners from paying taxes on the forgiven debt. On January 1, 2013, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This has the potential to save distressed homeowners millions of dollars in “phantom” tax liability over the coming year.


Read Full Post »

 Question: What are the Tax implications when a lender forgives debt in a foreclosure or short sale?

Answer: The short answer – Ask an accountant! The long answer is that the forgiven debt may or may not be taxable. Normally, debt that is forgiven or cancelled by a lender must be included as income on a tax return. But the Mortgage Forgiveness Debt Relief Act allows owners to exclude certain cancelled debt on their principal residence from income. It only applies to “qualified principal residences,” and the law expires at the end of 2012. So, if the bank forecloses or agrees to a short sale and forgives debt, and the owner lives in the home as his principle residence, the IRS suggests that the debt will likely not be taxable. For more information, go to the IRS website or IRS Publication 4681.
 

Question: Why are some banks taking so long to approve Short Sales?

Answer: Lenders are completely overwhelmed and understaffed. The foreclosure crisis struck quickly and grew at a staggering pace – too fast for lenders to keep up. There were nearly 2 MILLION foreclosure filings in the first half of 2009 alone. A large lender may have a few hundred loss mitigators. Dane County saw over 1,400 foreclosures in 2009. That is one relatively small county out of thousands nationwide. Lenders simply can’t keep up. At the same time, they can’t keep up with defaults and late payments. It is taking lenders longer than ever to deal with customers in default, start the foreclosure process, and push the foreclosures to completion.

Question: If a Realtor hires a third-party negotiator, can the Agent be held liable for that negotiator’s actions?

Answer: Probably. Third-party negotiators often charge their fee from the agent’s commission. Some go further and contract only with the agent for their services. In this case, the negotiator is essentially a sub-agent of the Realtor and the Realtor may very well be liable for the negotiator’s actions. This is a question for the Realtor’s broker or legal counsel.

Question: Are agents allowed to hold offers, if the bank hasn’t looked at them yet, and play offers against each other until the bank examines the offers?

 Answer: An agent can delay submission of an accepted offer, but doing so is not likely in the client’s best interest. By delaying submission, the Agent would be delaying initiation of the short sale process. In addition, a seller cannot accept multiple primary offers.  Only one offer can be accepted and any other offers would be in secondary position. Thus, there should be little reason to delay submission. There is some disagreement as to whether agents should submit secondary offers.  Many experienced agents suggest submitting only one offer and suggest that submitting multiple offers only slows the process.  Other agents suggest that the secondary offer, if better, improves your chances on two levels: one, it is a better offer, and it also shows sincere marketing efforts.   

Question: Short Sale are high risk, take incredible effort and long hours, often result in reduced commission, and often involve angry sellers. Why would any sane Realtor touch one of these?


 Answer:
Short Sales, Foreclosures and REOs comprise anywhere from 20-30% of the sales market in Dane County and will continue to be a large part of the market for quite some time to come. Distressed properties are hard, but they are also a fantastic opportunity.  Realtors who commit to this are having their best years ever.  Those agents are careful about which short sales they will take and avoid those that will just be impossible to close.  And they develop systems and shortcuts that make the overwhelming work manageable.  Agents can do more than survive, while truly helping sellers and buyers. The key is to stay educated, develop efficient systems, and work with a team of experts. The most important member of your team is a nimble, experienced title company, like Homestead Title.

Read Full Post »