Do you OWE TAXES? | Mortgage Debt Relief Act of 2007

Foreclosure or Short Sale…Do you OWE TAXES? | Mortgage Debt Relief Act of 2007

A tax tip from IRS.gov
Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.
The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes — for example, to pay off credit card debt — do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions — such as insolvency — may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your canceled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.

Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:
Form 982
Form 1099-C
Publication 4681
Remember that all of the web page addresses for the official IRS website, IRS.gov, begin with http://www.irs.gov. Don’t be confused or misled by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is http://www.irs.gov/.

This report is not meant to give legal advise. Please check with your attorney and tax advisor for any advise about your personal tax situation.

What’s the State of FHA’s Reserves?

There’s been considerable interest in the media in FHA’s financial position. The agency recently announced several increases to the premiums it charges borrowers to have their mortgage guaranteed by the agency. Those increases, along with some reports that FHA might request federal funds to shore up its reserves, make it seem like the agency is navigating a rocky period.

It is, but the agency is acting prudently and won’t need an influx of taxpayer funds this fiscal year, so its 78-year record of never having to request funds remains intact. Nor is there reason to believe right now they’ll need to ask for funds in fiscal 2013 or beyond, analysts say.

On the premium increases, the 0.10 percent hike that takes effect April 1 is mandated by law as part of the bill Congress passed at the end of 2011 to extend the payroll tax vacation. That bill required an increase in the guarantee fee that Fannie Mae and Freddie Mac charge banks for guaranteeing loans. Congress included the FHA increase in the bill, too, at least in part to create parity with Fannie and Freddie, NAR analysts say.

Another FHA premium increase, of 0.25 percent, is limited to jumbo loans, and another increase, of 0.75 percent, is specifically for helping the agency’s reserves
.

With these increases and with funds the agency will receive from the “robo-signing” settlement with large banks the federal government announced a few weeks ago, the agency has enough funds to replenish its reserves for fiscal year 2012, NAR analysts say.

Does this mean FHA will be in trouble again next fiscal year, which starts in October? NAR analysts say it’s too soon to tell. The recent drain on the agency’s reserves stems in large measure from the loans originated shortly after the housing downturn, when the availability of mortgage financing was at its worst and borrowers flocked to the agency. It’s now working through those loans. But looking ahead, things probably won’t be so bad, in part because the loans it backed from mid-2009 to now are among its strongest ever, so defaults could drop accordingly.

In any case, the pressures on the agency’s reserves aren’t just from defaults; they’re from continuing weakness in home prices. As long as prices stay weak, the agency has to hold more money in its reserves. So, the pressure on reserves isn’t solely because of losses but because of high reserve requirements in the face of struggling prices.

More fundamentally, it’s easy to lose sight of just how much in reserves the agency has. Unlike banks, which hold one year of reserves for the loans they carry, FHA has to hold 30 years’ worth. So, when the agency says its reserves are dipping, that dipping is happening in the context of reserves equivalent to 30 years for each of the mortgages it covers. That means its reserves amount to something like almost $38 billion. That’s money it still has.

On top of that, FHA maintains a second reserve account of 2 percent of its 30-year reserve amount. It’s this 2-percent reserve that’s been dipping.

So, to put this all in perspective, the agency continues to have tens of billions of dollars, but while it’s working through the loans it supported right after the mortgage crisis, it’s feeling pressure on its 2-percent reserve account, and part of that pressure comes not from losses but higher reserve requirements while prices stay dormant.

Once the agency works through this tough period, NAR would like to see it revisit its fee increases and lower them as appropriate.

You can get a good picture of what’s hapening in this 6-minute video with NAR Government Affairs.

On March 2, 2012, in Breaking News, Mortgage Financing, Politics & Government, by Robert Freedman 

To sell, or not to sell?

An introductory guide to selling versus renting out your home in today’s real estate market

Thinking of renting out your home? Make sure you are prepared before making the leap.

Selling one’s home often seems like the obvious choice when it’s time to move; but in today’s market, the idea of renting out your home until property values recover may have a fresh appeal.

According to a recent real estate column for Smart Money magazine, the desire to either wait out the market or simply hold on to property during a temporary absence often motivates homeowners to take on landlord duties. But before committing to one option over the other, it is important to understand the financial pros and cons of your decision, including tax issues, affordability and the responsibility of taking care of tenants.

Taxation perks and penalization, as well as basic investment benefits, vary considerably depending on whether you choose to sell or rent your home; and regardless of which option you choose, there are bound to be both advantages and risks.

When homeowners decide to sell, they accrue the potential benefits of tax-free capital gain, available equity to invest in new real estate, and the simplicity of dealing solely with a single residence. However, they also risk difficulty selling at their ideal price, as well as losing out on potential appreciation value.

Based on current home prices throughout San Diego and the rest of the state, such considerations may make renting seem more lucrative to some. But be warned: while renting allows homeowners to keep their property as it (hopefully) appreciates in value, and grants them the added bonus of both tax breaks and a steady rental income, it also finds them liable for property damage and upkeep, as well as income taxes and potential legal or financial disputes with tenants.

This leads to the next deciding factor between renting and selling: namely, are you ready and willing to be a good landlord — or at least to shell out 10% of your monthly tenant income to pay a property-management firm to do the job for you? If you plan on moving out of the immediate vicinity of your current home, a property manager is a veritable necessity to ensure proper handling of maintenance issues, rent collection, tenant screening and other related concerns. Then again, if you are simply moving to another home in the same area and anticipate significant appreciation in your property’s value in the coming years, being a landlord just might work to your advantage.

Article By Vicki Johnson

Protect the American Dream Rally on May 17th

CAN YOU HEAR ME NOW? On May 17, It’ll be Yes

After the housing downturn there were calls among lawmakers and policymakers in Washington to scale back the country’s historic commitment to home ownership. Those calls continue today.

NAR President Moe Veissi (center) with leaders of several state and local associations and YPN chapters on the U.S. Capitol grounds where the Rally to Protect the American Dream will be held on May 17. 

Maybe the value of the mortgage interest deduction should be curtailed, as President Obama is suggesting in his latest budget proposal. Maybe there should be little or no federal backing of mortgages once Fannie Mae and Freddie Mac are restructured out of existence, as some bills would do. Maybe loans that lenders originate for securitization should be required to have at least 20 percent down, as banking regulators have proposed. Maybe the fees that lenders pay to have their loans guaranteed by Fannie and Freddie should go up, as Congress has just passed into law.

All of these and more add up to an attack on home ownership and raise the question of whether our children and grandchildren, despite the unquestioned good home ownership does for our country, will have the same options for buying as we or our parents had.

Here in Washington, largely behind the scenes, NAR has been waging a battle on Capitol Hill and among the regulatory agencies to try to keep some balance in this debate over home ownership and dial back the reaction to the housing downturn.

In May, though, the battle will come into sharp relief as thousands of REALTORS® join NAR President Moe Veissi and the NAR Leadership Team at a rally on the grounds of the U.S. Capitol.

The Rally to Protect the American Dream takes place on May 17 and is REALTORS®’ high-energy way of letting Washington lawmakers and policymakers know that REALTORS® are ready to go to the mat to protect this most cherished of American institutions.

“Extraordinary times call for extraordinary measures,” NAR President Veissi says.

You’ll be hearing more about the rally in the months ahead. President Veissi and other leaders in the industry are reaching out to REALTORS® across the country to join them on the ground of the Capitol for what promises to be a memorable morning.

Sharing the stage with President Veissi will be members of Congress, home buyers, and others. Theirs will be a simple message: Real estate is the bedrock of the country and the country’s REALTORS® are taking a stand to keep it that way.

Lear more in this video podcast with President Veissi.

Send any questions about the rally to rally@realtors.org.

On February 23, 2012, in Breaking News, Midyear Meeting, Politics & Government, by Robert Freedman 

HOUSING IN DEPRESSION?

Warren Buffett: “Housing In a Depression..I Was Dead Wrong About Recovery”

 

Housing in ‘Depression’
Warren Buffett owns many real estate related companies and has a leading edge perspective on the housing market. In a recent interview the World’s Richest Man had a few very poignant comments about our industry…

Warren Buffett says America’s housing sector “remains in a depression of its own” but will eventually recover as America continues to create “more households than housing units.”

In the meantime, however, Buffett writes that the company’s housing-related units continue to “sputter.”
He admits that his prediction a year ago that housing’s recovery would probably begin within “a year or so” was “dead wrong.”

Buffett writes that the housing market’s continued weakness is “the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.”

TAX TIME...DID YOU BUY A HOUSE LAST YEAR?

 A GUIDE TO TAXES AS A HOMEOWNER...

Hey there, homeowner! We’re happy you’ve got a slice of the American dream, and you’ll get the tax breaks that go along with it. In fact, some of these tax incentives apply to even a second home. Ooh la la!

Whether you bought, sold or just happily lived in your home this year, we’ll walk you through all the tax stuff you need to know.

Just skim the “If you …” headers to find the sections that affect you.

If You Paid Interest on Your Mortgage …

You should have received a form 1098 from your lender, which will tell you how much mortgage interest you paid. You can deduct 100% of your mortgage interest and property taxes, as long as your loan is less than $1 million, ($500,000 if you are married and filing separately). If it’s over that, the IRS will limit your deduction. But here’s the catch: You have to itemize in order to claim the deduction. This is a choice that takes a little math and thought. But basically, you calculate your total itemized deduction, compare it against the standard deduction and then take the higher deduction.

You can also deduct late payment charges (please don’t consider this an incentive to pay late) and pre-payment penalties.

If You Paid Property Tax …  (Hint: You Did)

The property tax you pay each year is deductible. Usually these property taxes are paid as part of your monthly loan payments, so you can find that information on the annual statement from your lender. Real estate taxes can be deducted on federal returns even though they may not be deductible in the state where the property is situated.

If You Had a Loan Forgiven …

Depending on the time of debt, if a lender canceled it, you could be taxed as though that canceled debt were income. For example, if you had a mortgage of $10,000, paid $2,000 and the bank canceled the rest, you would be taxed as though you had $8,000 of income.

However, thanks to the Mortgage Debt Forgiveness Relief Act of 2007, the IRS will not charge income tax on a canceled debt. That means if you got a loan modification, short sale or foreclosure on your primary residence, you won’t be hit with a tax bill for it. This applies to up to $2 million in debt ($1 million if you are married, filing separately), that you took on to:

·  Buy your primary home

• Improve your primary home
• Refinance the loan for your primary home

This will only be in effect through 2012, so if you are considering a loan modification or other cancellation of debt, try to fit it in this year if possible.

If You Made Energy-Efficiency Improvements to Your Home …

The Nonbusiness Energy Property Credit is for homeowners who made energy-efficient improvements such as installing insulation, new windows or furnaces. For 2011, you can get a credit worth 10% of the cost of the qualified efficiency improvements you made. You can claim up to $500 over your lifetime.

What if your electricity comes from your own green sources? You should check out the Residential Energy Efficient Property Credit. This credit gives homeowners 30% of what they spend on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property. No cap exists on the amount of credit, except for fuel cell property.

If in this coming year you decide you want to go green for your home, the IRS suggests that you check for a certification statement that the item is eligible for a tax credit before you purchase. This can normally be found on the packaging or the company’s website. Full details are available on Form 5695.

If Your Home Was Damaged in a Disaster …

If your home was damaged by a disaster like a tornado or fire, you might be able deduct the amount that wasn’t reimbursed by home insurance. To do so, you need to know your AGI. Then multiply that by 10%, and subtract that and $100 from the amount of damage not reimbursed.

Example: Let’s say your home sustained $20,000 in hurricane damage, but you were only reimbursed $10,000 by your insurance company. $20,000-$10,000 = $10,000 in unreimbursed damage. Your AGI is $70,000, so $70,000 x 10% = $7,000. $10,000 – $7,100 = $2,900 in deductible damage.

Special Note: Should You Take the Home Office Deduction?

Provided you are actually eligible for the home office deduction (learn more so you don’t get audited), deducting the expense could either be a smart decision or a poor one. That’s because once you claim that home office, it doesn’t count as part of your private residence anymore. When you sell your house sometime down the line, you’ll either make a profit or a loss. If you make a profit, the value of your home office will be taxed as a capital gain, at a maximum rate of 25%, costing you money. If you make a loss selling your home, you can deduct the value of the home office as a loss, making you money.

How the math works out for your depends on your situation, so it’s smart to talk to your tax preparer before you deduct your home office.

If You Paid Closing Costs …

Any origination fees that you paid your mortgage lender at closing are deductible, even if your lender paid the closing costs. You can find the exact figures on your HUD-1 settlement statement, which you received from your escrow provider or title attorney at or just after closing. If you can’t seem to find it, contact your real estate agent or mortgage broker to request it.

If You Paid Property Taxes …  (Hint: You Probably Did)

Like we explained above, usually your property taxes are paid to your lender as part of your loan. But if you bought your house this year, you probably paid your fair share of the property taxes upfront. You can find out how much you paid on your settlement documents, and deduct it.

If You Paid Mortgage Discount Points …

When you pay a “point” toward your mortgage, that means you paid the equivalent of 1 percentage point of your loan upfront at closing in order to get a lower interest rate. This doesn’t go to pay off your loan, but it can save you money in the long run, which is why people do it. If you paid mortgage points, you can deduct them if:

• The loan is secured by your primary residence
• The loan was used to buy, improve or build the home
• Paying points is a common practice in the geographic area of your new home
• The points are calculated as a percentage of the loan principal
• The points are clearly outlined on the buyer’s settlement statement, and
• The amount of cash you put into the purchase of your home (including down payment, closing costs, etc.) is at least equal to the amount you were charged for the points you paid on the loan

If you paid points to refinance your home instead of buying or improving your home, you deduct a portion of what you paid each year, spread out over the life of the loan. For example, if you paid 1,000 in points to refinance a 10-year loan, then you could deduct $100 each year.

If You Took Out a Personal Home Equity Loan …

What if you took out a home equity loan to pay for something other than your home, like tuition or home improvements? Well, it depends. Part or all of the interest you pay on that loan could be deductible for up to $100,000, or $50,000 if you are married filing separately. Here’s how the math works when it comes to tuition:

Let’s say your home is worth $200,000. You currently have a mortgage worth $150,000. So your home is worth $50,000 more than the mortgage. If you take out a home equity loan to pay for tuition, then you can only deduct the interest on $50,000 of that loan. That number would be the same whether you took a loan out for $60,000 or $200,000—you can only deduct interest on $50,000 of that loan.

If you find yourself getting hit with the alternative minimum tax (AMT), then you cannot deduct any portion of the interest on a home equity loan when calculating AMT.

However, if you used that $60,000 loan to build a shed and install a pool, you can deduct all of the interest whether or not you fall under the AMT. That’s because you used the loan to improve your property.

If You Made a Profit on Your Home …

If you sold your house for more than you paid, you technically made what is called a “capital gain.” Usually capital gains are taxed, but the gain you made on your home—up to $250,000 ($500,00 for married couples filing jointly)—is exempt from income taxes. You just need to have:

• Owned the property for two years, and
• Lived in it for two out of the last five years before you sold it

If you don’t meet these requirements, all is not lost. If you had to sell your home because of:

• Death
• Divorce or legal separation
• Job loss that qualifies for unemployment compensation
• Employment changes that made it difficult for you to meet mortgage and basic living expenses
• Multiple births from the same pregnancy
• Damage from a natural or man-made disaster
• “Involuntary conversion” by a local government under eminent domain law, for example

Then the IRS will cut you some slack and only tax your gain partially. Learn more at the IRS website.

Also, if the gain you made is more than $250,000 (or $500,000 if you’re married filing jointly), dig around and see if you can find the receipts for any home improvements you made. That will establish the cost basis for the home as higher. For example, if you bought your home for $300,000 and made $50,000 in improvements, then sold it for $600,000, you can deduct that entire amount ($600,000-$350,000 = $250,000). If you hadn’t included those improvements, you would have been taxed on that extra $50,000 that exceeded the limit.

This post originally appeared on LearnVest.com on Feb. 15, 2012 and was written by Alden Vick

Disclaimer: This information is taken from an original post on LearnVest.com and the author of this BLOG is not offering legal advice and is meant as educational information to possible tax exemptions available and All tax payers should consult with a professional tax consultant or financial advisor in regards to any tax questions.

CELEBRITY HOME SALES

Patricia Arquette Sells Vine-Covered Home For Loss

1. 
2. 
3. 
4. 
5. 
6. 
7. 
8. 

Patricia Arquette’s home

Source: IMDb

Celebrity real estate, like regular real estate, usually hits the market in the aftermath of divorce proceedings.
Patricia Arquette and former husband Thomas Jane, listed their home for sale in Mid-Wilshire, Los Angeles after they announced their divorce. First listed on the market in June 2011, Arquette’s home recently sold for $2.775 million — 20 percent less than the original asking price, according to the Real Estalker.
Arquette, best known for her role in TV’s “Medium,” which aired 2005 through 2011, purchased the vine-covered home in 2003 with Jane for $2.25 million. Arquette and Jane — of TV series “Hung” — were married in 2006, they divorced in late 2010.