Category Archives: Tax Credits

California Short Sellers No Longer Need To Worry About Federal Income Tax

California Short Sellers No Longer Need To Worry About Phantom Income

California Short Sellers No Longer Need To Worry About Phantom Income

With the surging San Francisco and Bay Area real estate market, shorts sales and foreclosures have seen a steep decline. Even so, they still exist in San Francisco, San Mateo County as well as neighboring counties and cities.

Thanks to California Senator Barbara Boxer who pushed this issue with the IRS and got this letter  as clarification about the Mortgage Debt Forgiveness Act.

“The IRS has clarified in a letter that California’s troubled homeowners who sell their homes in a short sale are not subject to federal income tax liability on “phantom income” they never received.”

Homeowners in California involved in short sales have been concerned with “phantom income” which refers to the amount of debt that is forgiven when a lender is willing to accept less than the full amount owed (as in a short sale). If you owed $500,000 on your mortgage, and the lender allowed a short sale for $450,000, you would have “received” $50,000 in phantom income.

In 2012, Congress extended the Mortgage Forgiveness Debt Relief Act. The California version expired at the end of 2012. The Federal provision expired at the end of 2013. This year instead of waiting for Congress to pass (or not) the Mortgage Forgiveness Debt Relief Act, the IRS and the Franchise Tax Board (California’s version of the IRS) eliminated the phantom income tax. In short, California short sellers of residential properties (1 – 4 units) will continue to be protected from taxation on the “phantom income” received in a short sale.

With so many issues nipping at the heels of still underwater homeowners at least the fact that Uncle Sam and his California cousin will not have their hands out at the end of any short sale transaction ready to collect phantom income will make things slightly easier for still distressed property owners.

Mortgage Debt Forgiveness: 10 Key Points

Advertisements

Leave a comment

Filed under California, San Francisco, San Mateo county, short sales, Tax Credits

Mortgage Forgiveness Debt Relief Act Expires End of this Year!!!

Don’t Get Short Screwed By Uncle Sam!

3 Comments

August 8, 2013 · 5:06 am

Mortgage Debt Forgiveness Relief Act Set To Expire December 31, 2013

Mortgage Debt Forgiveness Relief Act Set To Expire December 31, 2013

Mortgage Debt Forgiveness Relief Act Set To Expire December 31, 2013

 

Homeowners On The Fence About A Short Sale Should Consider The Year End Expiration Of Tax Break

It seemed like just yesterday that underwater homeowners faced a conundrum to either short sale or wait things out to see if the market would improve. For many homeowners the market improved so much that they now sit right side up with actual equity in their home. Short sales have become equity (or what many people refer to as “normal”) sales.

Even with the hot sellers market, some Bay Area homeowners remain underwater. Because we passed the halfway point in 2013, homeowners have that same decision as before. With the Mortgage Debt Forgiveness Relief Act set to expire at the end of this year, homeowners on the fence must choose whether to short sale and take advantage of the tax break or try another option.

What would those other options be?

1- Although banks have been downplaying the loan modification option for some time, homeowners can still apply for either a HAMP (government guidelines) or one of the in-house lender modification programs. Usually the banks mirror the HAMP guidelines but some differences often exist. Either way, those choosing this option should consider using a non-profit counselor to advocate on your behalf, instead of dealing directly with the bank.

2- Refinance through HARP (Home Affordable Refinance Program). Homeowners with no late payments in the past 12 months who are underwater may be eligible to refinance through the HARP loan. Many guidelines exist including that the loan be owned by Fannie Mae or Freddie Mac. Those interested might consider working with a knowledgeable loan officer who doesn’t necessarily need to work with your current servicer.

3- If the above options don’t work, then a short sale may be the best bet. A short sale, handled correctly, will allow the seller to exit the home without any debts. The short sale can be particularly handy for homeowners with multiple liens and/or HOA liens. Depending on the status of your loans, a foreclosure may leave homeowners open to financial liabilities, while a short sale many times allows a cleaner break.

The Importance Of the Mortgage Debt Forgiveness Relief Act

In a short sale, the Mortgage Debt Forgiveness Relief Act plays an important part of the loan forgiveness. The bank essentially “pays” the delinquent borrower the amount of debt forgiven, which is why creditors send Form 1099-C to the borrow showing the amount of “income” that he or she received as forgiven debt.

We conferred with CPA Robert Caplan about the Mortgage Debt Forgiveness Relief Act.
Mr. Caplan mentioned, “Homeowners should keep in mind that they can only apply this provision if it was to purchase or improve the property. The advantage is particularly important if they have not re-financed the hell out the house.”

If considering a short sale, a homeowner might worry about being a target for an audit but Mr. Caplan mentioned, “It appears that there is not a lot of auditing for relief indebtedness if you do your tax planning carefully.

To many people, it would seem logical to once again extend the Act but with the Congress scoring a 14 percent approval rating who knows if they will use logic to extend this program.

This sellers market will not last forever. Interest rates should climb. At some point, real estate inventory will probably rise. Those on the fence should consult with their financial planner, accountant or other professional who can look at the big picture to decide if now if the time to hold on or sell and take advantage of the Mortgage Debt Forgiveness Relief Act.

Leave a comment

Filed under Banks, California, Foreclosure, Loan Modifications, Mortgages, San Francisco, short sales, Tax Credits

California State Senate Passes SB 30 Mortgage Debt Forgiveness

Senate Passes SB 30 Mortgage Debt Forgiveness

Senate Passes SB 30 Mortgage Debt Forgiveness

The Personal Income Tax Law Mirrors The Federal Mortgage Forgiveness Debt Relief Act Of 2007

In the first completion of a long overdue process the California State Senate this week passed SB 30 which mirrors the federal Mortgage Debt Forgiveness Relief Act. SB 30 which provides tax relief to those who are selling a home in a short sale will now move on to the state Assembly.

The Personal Income Tax Law conforms to specified provisions of the federal Mortgage Forgiveness Debt Relief Act of 2007, relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from a taxpayer’s income if that debt is discharged after January 1, 2007, and before January 1, 2010. The federal Emergency Economic Stabilization Act of 2008 extended the operation of those provisions to debt that is discharged before January 1, 2013.

This bill would extend the operation of the exclusion of the discharge of qualified principal residence indebtedness to debt that is discharged on or after January 1, 2013, and before January 1, 2014.

SB 30 Tied To SB 391

In late May, the California Senate Appropriations Committee linked SB 30 to SB 391, a bill which creates a $75 recording tax to be used of affordable housing. This link, in the form of an amendment, says that SB 30 cannot take effect unless SB 391 does as well.
Politics aside, having SB 30 in place will offer homeowners another option to choose a short sale over a deed-in-lieu or a foreclosure.

If politicians insist on having the bill tied to SB 391 then let it be, because SB 30 offers too much importance for homeowners to allow it to languish in the capital.

Leave a comment

Filed under California, short sales, Tax Credits

California’s Version Of Mortgage Debt Forgiveness Relief Act Passed With A Hitch

California's Version Of Mortgage Debt Forgiveness Relief Act Passed With A Hitch

California’s Version Of Mortgage Debt Forgiveness Relief Act Passed With A Hitch

Amendment holds SB 30 hostage to passage of SB 391

In the midst of all of the discussion about rising home prices and rising interest rates, the Senate Appropriations Committee recently approved Senate Bill 30, which would extend existing provisions of state law protecting homeowners from having to pay income tax on a short sale.   Good for homeowners.

However, like so many other bills, the committee attached SB 30 to another bill that many real estate industry people (including Realtors, county recorders, assessors and title industry) oppose.  That measure, Senate Bill 391, would establish a $75 per document recording tax to fund an affordable housing trust fund.  In a sense, the amendment holds SB 30 hostage to the passage of SB 391.  Not good for homeowners.

Federal Mortgage Debt Forgiveness Relief Act until December 31, 2013

The federal government already extended the Mortgage Debt Forgiveness Relief Act until December 31, 2013. However, if the state does not extend the California version then those homeowners who do short sales or have their homes foreclosed will be held responsible to the tax on the “phantom income.”

To be clear, SB 391 does not apply to sale transactions, the measure applies anytime a home/property owner records a document (e.g., refinancing, transferring into or out of a trust, liens, quit claim deeds, etc.).

To some this bill simply tacks on a new tax for homeowners to fund affordable housing.

Thoughts? Take our poll.

Leave a comment

Filed under California, Foreclosure, short sales, Tax Credits

Underwater and Distressed Homeowner Panel Event Tonight In San Mateo

Underwater and Distressed Homeowner Panel Event Tonight In San Mateo

Underwater and Distressed Homeowner Panel Event Tonight In San Mateo

Homeowners With Underwater Or Distressed Properties Can Find Answers Tonight In San Mateo

In the first of the 2013 panel event series, Bay Area Resource presents their Underwater and Distressed Property Panel Event in San Mateo this evening. Even with the home values of San Mateo county and other Bay Area regions rising, many homeowners remain underwater. Still other homeowners have equity in their homes yet they have foreclosure sale dates. Still others continue to go round and round in a seemingly never-ending process with banks otherwise known as the loan modification dance.

Many of these above mentioned issues will be discussed with a panel of experts that include: Rebecca Pinger from Community Legal Services in East Palo Alto, Keisha Woods from Senior Homeowner Services, John Figone from Prospect Mortgage, Patricia Lowe from Intero Real Estate, and Jeff Johnston from Johnston Tax Group.

In addition to discussions about loan modifications, the panel will address other Hot Topics such as the recently extended (through January 1, 2014) mortgage Debt Forgiveness Relief Act which will benefit homeowners who wish to short sale their home, or who accept a deed in lieu of foreclosure or who choose to go the foreclosure route.

California Homeowner Bill Of Rights To Be Discussed

Another Hot Topic will be discussed will be the California Homeowner Bill Of Rights which took effect January 1, 2013. Some of the homeowners rights include: no dual tracking by banks, a single point of contact for homeowners seeking loan mods and the ability for homeowners to sue the banks in regard to certain wrongdoings in the case of foreclosures and the foreclosure process.

For those who cannot attend in person, the event will be available live through webstream and live chat at BayAreaResource.com (under panel events). Otherwise, the event will take place every third Thursday through 2013.

When: Thurs. Jan. 17th Time: 6-8pm
Where: 1100 Park Place ‘Lobby’
San Mateo CA, 94403
Off Hillsdale and 101
– Between Whole Foods/Crunch Fitness

1 Comment

Filed under Banks, California, Events, Foreclosure, Loan Modifications, Mortgages, pre-foreclosure, San Mateo county, short sales, Tax Credits

Extension of the Mortgage Debt Forgiveness Act But Not For California….Yet

Extension of the Mortgage Debt Forgiveness Act But Not For California....Yet

Extension of the Mortgage Debt Forgiveness Act But Not For California….Yet

Extension Of Act Now Set To Expire January 1, 2014

While pundits in Washington DC debated about who won and lost in the recent government “fiscal cliff” negotiations, Bay Area homeowners scored a victory. Congress extended the much-needed Mortgage Forgiveness Debt Relief Act until January 1, 2014. The law initially expired on December 31, 2012.

California Senate Bill 30 Addresses Extension Of State Tax Law

While the federal government extended the tax relief for one year, California still has not extended the state tax law. Fortunately, Senate Bill 30 is making its way through the California State Senate. This much-needed bill would offer one additional year exempt the taxation of mortgage debt (sometimes known as “phantom income”) that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification.

This important topic will be one of the key issues discussed at the free Underwater Homeowners Forum Thursday January 17th from 6-8 p.m. at 1100 Park Place ‘Lobby’ San Mateo CA, 94403. The forum takes place every 3rd Thursday through 2013.

Homeowners interested may register at Bayarearesource.com or call 415-578-7488 and choose option 2.

Homeowners who cannot attend can view via live video streaming and achieves.

Leave a comment

Filed under California, Loan Modifications, short sales, Tax Credits