In December Congress passed sweeping legislation intended to help home sellers with foreclosures, short sales, deed in lieu of foreclosures, and loan modifications. Prior to this bill discharged debt had been considered ordinary income to the borrower for income tax purposes. Under certain circumstance (see below) taxpayers may now exclude this amount and the associated tax liability. This is great news for home owners. In the past they would have a double whammy – 1st losing their home to foreclosure (or short sale, or deed in lieu of foreclosure), and then being responsible for pay income tax on the delta between their loan and the amount the home eventually sold for by the lender. It also allows home owners the opportunity to re-negotiate a refinancing of their loan, and escape the tax liability if it includes any debt forgiveness.So, why did I title this post “Give Home Buyers the Edge”? Because the BIG NEWS is that now home buyers can get tremendous deals with short sales because it no longer materially matters to the seller! In the past sellers could anticipate a huge tax liability if they agreed to a short sale. Now, with this forgiveness law, this objection to a low sale price is removed. The lender is the only party on the sale side that has a stake in the deal, so it’s almost like “The Price Is Right” to see how low a price the lender will accept! Also, by removing the homeowner as a key stakeholder in the deal, you often also remove some of the emotion in the negotiation process. I stated earlier that some conditions apply to the new law. The Las Vegas Review-Journal has an excellent description of the new law. Here’s an excerpt from their article (for the complete article go to http://www.lvrj.com/real_estate/13729317.htm):
- Rules for debt forgiveness: The debt must have been discharged by the lender in 2007, 2008 or 2009.
- The amount of debt that can be excluded is limited to $2 million.
- The exclusion can be used only if the loan was taken out to acquire, build or substantially improve a principal residence. Forgiveness of debt on vacation homes, second homes and investment property doesn’t qualify.
- Debt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other debts. Only the allowable portion qualifies for the tax break, says John W. Roth, a senior tax analyst at CCH, a provider of tax services, software and information in Riverwoods, Ill.
Consult a qualified tax professional for more information and advice about your situation.
Technorati Tags: great opportunity for buyers in reno, maureen loeb, maureen o'grady, reno foreclosures, reno home buying, reno real estate, washoe county foreclosures
Posted by Maureen, filed under Info for Byers, Info for Sellers, Market Watch. Date: January 24, 2008, 1:05 pm |
10 Responses
Leave a Comment
January 24th, 2008 at 1:28 pm
[…] Salt Lake Mortgage Guy wrote an interesting post today onHere’s a quick excerptIn December Congress passed sweeping legislation intended to help home sellers with foreclosures, short sales, deed in lieu of foreclosures, and loan modifications. Prior to this bill discharged debt had been considered ordinary income … […]
January 24th, 2008 at 3:02 pm
[…] unknown wrote an interesting post today onHere’s a quick excerptDebt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other … […]
January 24th, 2008 at 5:31 pm
[…] bookmarks tagged mortgage New Federal Mortgage Forgiveness Debt Relief Act o… saved by 1 others xKunoichiHinatax bookmarked on 01/24/08 | […]
January 24th, 2008 at 6:19 pm
[…] FISH wrote an interesting post today onHere’s a quick excerptDebt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other … […]
January 24th, 2008 at 7:17 pm
[…] unknown wrote an interesting post today onHere’s a quick excerptDebt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other … […]
January 24th, 2008 at 7:38 pm
[…] unknown wrote an interesting post today onHere’s a quick excerptDebt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other … […]
January 25th, 2008 at 3:14 am
[…] Here’s an interesting post I found today.Have a look for your self, Here’s an excerpt, please read the full story at the blogThe lender is the only party on the sale side that has a stake in the deal, so it’s almost like “The Price Is Right” to see how low a price the lender will accept! Also, by removing the homeowner as a key stakeholder in the deal, … […]
January 26th, 2008 at 7:18 pm
[…] unknown wrote an interesting post today onHere’s a quick excerptIn December Congress passed sweeping legislation intended to help home sellers with foreclosures, short sales, deed in lieu of foreclosures, and loan modifications. Prior to this bill discharged debt had been considered ordinary income … […]
January 28th, 2008 at 4:59 pm
Today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit (HELOC) to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…
February 1st, 2008 at 7:31 pm
This relief is going to help a lot of people out. It’’s about time.