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Jim Swanson's Blog

By Jim Swanson | Broker in Sacramento, CA
  • Debt Forgiveness Act is about to EXPIRE!

    Posted Under: Home Selling in Sacramento, Financing in Sacramento, Foreclosure in Sacramento  |  February 24, 2012 9:50 AM  |  744 views  |  No comments

    If you are facing foreclosure or planning to “short sell” your home, you had better move FAST. The tax consequences of waiting may be extreme! The act that has protected people from having to pay huge taxes as a result of a foreclosure or short sale is about to expire. In this article from The Seattle Times, it is reported that the likelihood of extending that act is only 50-50.

    About Debt Forgiveness:

    When someone is:

    • foreclosed upon,
    • completes a loan modification that includes principal reduction or
    • completes a short sale of their principal residence,

    the forgiven debt (the difference between the sales price and the remaining debt) is TAXABLE INCOME and the associated taxes must be paid on the following tax return. The IRS publication on that HERE. There is a lot of good information and a required read if you are looking at foreclosure in the near future.

    With all the foreclosures and short sales that started in 2006, congress passed the “Mortgage Debt Relief Act of 2007″. That act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.  This act is set to expire at the end of 2012.

    What this may mean for you:

    Simply put, that means if you stop making mortgage payments, today, your foreclosure will may not happen until early next year when the forgiven debt MAY be fully taxable.

    The reason for the time frame is that mortgage companies wait at least 90 days after your last missed payment to submit a “Notice of Default” (NOD). In California, for example, after 90 more days the mortgage company may submit a “Notice of Trustee’s Sale” (NTS). That notice must schedule the sale AT LEAST 21 days from the notice date. Add them all up and we have about seven months. Typically, banks wait a bit more at each step because there are so many homes that are in that situation and they do not want to take them all too quickly. This process can easily drag on for a year or more. we all know someone who has not made mortgage payments in over a year without being served even with the initial NOD. In fact, if you have already stopped making payments and have not yet received the NOD, you are still likely to be in the same situation.

    The “take away” is, if you are in default or expect to be in the near future, you may be better off if you try for a short sale now, rather than waiting for the bank to foreclose. I recommend the following:

    1. Read both of the articles linked to this post.
    2. Contact a tax attorney or CPA (go ahead, spend the money. You’ll be glad you did).
    3. ACT! Take charge of the situation. Ten months is barely enough time to complete a short sale (if that is what your CPA recommends).

    Remember, the IRS WILL BE PAID! — the only other thing you cannot avoid.

    Posted on Friday, February 24th, 2012 at 5:35 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Edit this entry.

  • Is cash really king? That depends.

    Posted Under: Market Conditions in Sacramento  |  February 16, 2011 2:00 PM  |  520 views  |  2 comments

    I work with a lot of investors and people who are buying multiple houses, many are using cash to purchase. There is a belief that "cash is king" and that a cash offer carries more weight than a financed offer. That is most likely true, however, who much difference does it really make? I found that this depends.

    I collected sales over the past six months in three different neighborhoods. These were sales of the typical home for that area based on square footage. In one neighborhood, 55% of the homes were purchased with cash, another, 27% and still a third was 12%. These were Oak Park, the Consumnes River College area, and Rosemont, respectively. As one may expect, there is a correlation in average prices based on price per square foot of $70, $108, $124
 
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