The settlement by Congress to avert the â€œfiscal cliffâ€ didnâ€™t only keep some
tax hikes at bay for middle-income America.
The 2012 American Taxpayer Relief Act continues to exempt from taxation
mortgage debt that is forgiven when homeowners and their mortgage lenders
negotiate a short sale or loan modification â€” including any principal reduction
â€” on primary property.
Extension of the tax exemption to Jan. 1, 2014, has many in California
breathing more comfortably.
â€œWeâ€™re relieved because it gives homeowners a sense of relief,â€ Molly Silva
Gurrola, of Riverside-based Silva Group, said as she put finishing touches on a
mid-century modern home she is listing for an equity-sale. â€œNow, everyone can
make a decision based on their individual needs.â€
Don Faught, president of California Association of Realtors and managing
broker of Alain Pinel Realtors in the San Francisco area, notified state trade
association members of the â€œgood newsâ€ through an e-mail blast on Wednesday,
He advised Realtors to:
Tell their clients to keep their short-sales on the market.
Encourage clients to consult with their own tax advisers about the impact
this tax break can have on their situation.
Congress also raised capital gains rates from 15 to 20 percent for
high-income earners, he advised, but the capital gains ceiling on the sale of a
principal residence remains at the first $250,000 for single taxpayers and at
$500,000 for married couples.
â€œThis extension has given us much encouragement,â€ said Nancy Carmon Petrone,
a broker in San Bernardino, where reports suggest that nearly 50 percent of
homes with mortgages there are â€œunderwater,â€ a status given to a property valued
at less than the note.
Petrone said there was a lot of stress before the holidays to close a deal on
â€œA lot of homeowners didnâ€™t know what would happen, and held off on doing
Now that California homeowners have one more year to complete a short sale or
loan modification to benefit from the federal tax break that otherwise would
have expired Tuesday, analysts say homeowners will be in a better position to
think through 2013 strategies with clearer heads.
Faught said he spoke with two agents before New Yearâ€™s who expressed concern
that a lender was delaying the close of escrow on short sales, in case the
extension did not occur.
â€œThe short-sellers were going crazy,â€ he said. â€œAt one point they considered
going into foreclosure, instead.â€
Those two deals closed today, Faught said, and one seller called to express
thanks for lobbying to keep the exemption intact.
The act has saved individual homeowners thousands of dollars since it took
effect in 2007.
â€œOur surveys tell us that if the principal is reduced by $100,000, it can
save a homeowner anywhere from $15,000 to $35,000â€ on the phantom income under
2012 tax rates, Faught said. â€œThatâ€™s not an insignificant amount.â€
Steve Silva, principal of the Silva Group, said heâ€™s already seeing a spurt
of short sales coming onto the market. â€œPeopleâ€™s attitudes are different than a
year ago â€” more positive,â€ he said. â€œI think the government made a wise decision
to continue this. I see no let-up right now.â€
With short-sales fetching higher amounts than a foreclosure, Molly
Silva-Gurrola sees yet another emerging trend: Borrowers who are underwater on
their loan may begin to come up for air.
She said she planned to meet a client in Corona this week who is at a
break-even point on a $475,000 mortgage, but held off on listing her home six
months ago because it would have put her underwater on the sale by the time she
paid commission and fees. â€œWeâ€™re going to re-analyze that to see if we can now
go through a regular sale.â€
Faught said these scenarios are a significant reversal from foreclosure
activity. Statewide, foreclosure levels fell to 12 percent in 2012, down from 25
percent of all sales.
â€œForeclosures are not good for banks or home values,â€ he said. â€œWeâ€™re not in
a housing boom, but we are on a road to recovery.â€
Lon Mapes - Redlands Broker/Owner & Consultant
Multimillion Dollar Sales Producer
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