“Boomerang buyers who lost a home to a foreclosure or short sale between 2007 and 2013 are projected to make about 10 percent of all U.S. home purchases in 2014, according to John Burns Real Estate Consulting (JBREC)…According to JBREC, the number of boomerang buyers will increase in 2015 and 2016 as more former owners become eligible for new loans.” (“After losing their homes in the foreclosure crisis, boomerang buyers are back“, The Washington Post).
Will the Federal Mortgage Debt Relief Act be extended for another year in 2014?
Yes. The Mortgage Debt Relief Act (MDR) will be extended. The National Association of Realtors (NAR) is working with the lawmakers to get the MDR extended for at least another year. Here are the details for you: Continue reading
A homeowner who has $100,000 in mortgage debt forgiven through a short sale, for example, would have to pay income tax on the $100,000.
Serving you as my client is about creative problem solving! What’s your situation? I can help!
Because of my years of short sale experience, I had the honor of being featured in a recent National Association of Realtors’ article:
“Sure, being known as an expert can set you apart. But if you have to tell people you’re an expert, you probably aren’t one. Here are some tried-and-true tips for practitioners looking to gain the expert advantage…
John A. Silva, a sales associate with Berkshire Hathaway HomeServices California Properties in La Mesa, Calif., became a short sale specialist to survive the down market when he entered the business in 1992.
Sales, Stats & Seller Incentives
All foreclosure sales and pre-foreclosure sales (including short sales) in the United States showed an increase, according to a recent article by Realty Trac. REO properties declined in the 4th quarter of 2012.
With this report and the strong showing of short sales overall for the year, there should be a steady stream still of short sales still coming; however, a decline and a future decline in REO sales.
All this means is that inventory is expected to remain relatively low, and for you sellers out there looking to upgrade or scale back in your home’s size, NOW is the time: this is the year!! Having confidence in buying a home now has never been higher and sellers really hold the key to their destiny.
I expect to see more contingent sales for sellers to sell their homes, then find their dream home at their own pace with values continuing their increasing ebb. This scenario causes no rush to sell, and when a contract is properly written up as a seller, you can literally make even more money on your property selling. I know the best way to structure your sale to make even more money than you thought–even if you take several months to find another property.
Call me today for your professional analysis of your property. Thank for reading–all the best!
John A Silva
Considering selling your home as a short sale or have you started the process? You will want to know the consequences regarding the amount forgiven by your lender(s). Federal law has extended the forgiveness of tax liability; however, as of this writing, California tax law extension is pending. For those of you outside the state of California, it is imperative you contact your local experts regarding the short sale of houses and debt forgiveness.
With real estate values on the rise, you’re probably thinking you will be okay and your home will have equity shortly. Not so fast! I suggest you have your specific situation evaluated by a qualified short sale agent expert to calculate your home and all the trends for your area.
As always, I recommend seeking out a qualified CPA accountant familiar with these laws. For any further questions or help regarding this issue, feel free to contact me.
What are the tax implications of a short sale?
A. Cancellation of Debt (COD) Income
A short sale, where the lender agrees to reduce some or all of the outstanding debt, may give rise to forgiveness of debt income (also called cancellation of debt” or COD income). The amount of the debt that the lender agrees to write off is treated as “ordinary income” (as opposed to capital gains income, which is taxed at a lower rate). Even though the lender may be taking this action to facilitate the sale by the owner who is under a notice of default and facing a foreclosure, the agreement between the owner and the lender is considered voluntary and the amount of the loan written off by the lender is treated as forgiveness of debt (cancellation of debt – COD). The taxpayer will generally receive a 1099 tax form from the lender in the amount of the cancellation of debt.
This forgiveness or cancellation of debt which is treated as “ordinary income” under certain circumstances may or may not be subject to taxation.
Federal Mortgage Forgiveness Debt Relief
Under the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) signed by President Bush on December 20, 2007, Internal Revenue Code §108(a)(1)(E) was added and provides that a taxpayer will not be taxed upon cancellation of debt income if the following conditions are met:
- The property sold in the short sale is the taxpayer’s principal residence, as that term is used in IRC §121.
- The cancellation of debt is Qualified Principal Residence Indebtedness** under IRC Section 163(h)(3)(B).
- The indebtedness is discharged after January 1, 2007 and before January 1, 2014. (The end date was increased by three years from 2010 to 2013 pursuant to H.R. 1424, the Emergency Economic Stabilization Act of 2008 and extended to 2014 by H.R. 8, American Taxpayer Relief Act of 2012 signed into law January 2, 2013 by President Obama).
**Qualified Principal Residence Indebtedness is a loan secured by the residence used to acquire, construct or substantially improve the residence. The income relief provided is capped at $1,000,000 in the case of a married person filing a separate return and $2,000,000 for all others.
Any reduction of indebtedness excluded by IRC §108(a)(1)(E) will be applied to reduce the basis of the taxpayer’s principal residence, but not below zero. This could result in a higher amount of capital gains tax owed by the taxpayer.
California Mortgage Debt Forgiveness Relief
California law, SB 401, conforms California Revenue and Tax Code Section 17144.5 to federal law, but with the following changes:
(1) The maximum amount of qualified principal residence indebtedness is $800,000 for married couples filing jointly, registered domestic partners filing jointly, single persons, head of household, widow/widower; and $400,000 for married couples or registered domestic partners filing separately; and
(2) The maximum amount of debt relief income that can be forgiven is $500,000 for married couples filing jointly, registered domestic partners filing jointly, single persons, head of household, widow/widower; and $250,000 for married couples or registered domestic partners filing separately; and
(3) California’s debt relief statute applies to property sold on or after Jan. 1, 2009 and before Jan. 1, 2013.
California has not currently passed a law which extends the California debt relief statute to bring it into conformity with the federal law which extended the federal debt relief statute to January 1, 2014 (see above). C.A.R. has sponsored SB 30 (Calderon, D-Montebello) to extend California’s debt relief protections which are currently pending. The proposed law would be effective retroactive to January 1, 2013. Information on the status of the bill can be found at www.leginfo.ca.gov.
San Diego County closed out 2012 with foreclosures at their lowest level in six years, says a report released Wednesday from local real estate information company DataQuick.
The consistent drop in the number of people losing their homes to bank repossessions appears to be a product of an economy on the mend, increasing home values and government-led deals with major banks that promise borrowers alternatives to foreclosure, DataQuick officials said.
December foreclosures plummeted to 355, the lowest level since December 2006, when 288 were recorded. December’s total is nearly 18 percent lower than November’s and half of December 2011’s.
Default notices, the first official filing in the foreclosure process, totaled 878. That’s up 7.2 percent from November but down nearly 30 percent from the same month a year ago…
Read the rest of this article by U-T San Diego here: “San Diego foreclosures at 6-year low”.
“Foreclosure inventory in California continued its steady decline in November, according to data from ForeclosureRadar.
The total number of preforeclosures, foreclosures scheduled for sale, and REOs fell 7.6 percent from October to November and declined by 31.8 percent from a year ago.
ForeclosureRadar said, “the significant decline in foreclosure inventory over the past year has contributed to what some are calling an ‘inventory crisis’ of total homes for sale.”
The company attributes foreclosure cancellations as part of the reason for the decline.
Cancellations rose 4.7 percent from October and spiked 69.9 percent in the past two months. Compared to last year, cancellations are up 34.7 percent.
ForeclosureRadar believes short sales and successful modifications are likely leading to cancellations rather than statutory time frames or filing errors…”
Read the rest of DSNews.com’s article on their website, here: “Report: California’s Foreclosure Inventory Continues to Dry Up“.