Published: November 12, 2012
Unless Congress extends the forgiven debt exemption, financially troubled home owners who short sell their homes to avoid foreclosure or otherwise have mortgages forgiven will get slammed with a huge tax bill in 2013.
The nation’s attorneys general worked hard to get the five biggest mortgage servicers to agree to a $25 billion settlement to help the nation’s financially troubled home owners avoid foreclosure.
The national mortgage settlement was intended to help stop the housing market spiral and hold the banks accountable for foreclosure abuses.
Now, a good portion of that money may end up in Uncle Sam’s bank account, wrenched from the depleted pocketbooks of those same troubled home owners in the form of income taxes.
The tax rub occurs because IRS rules say a debt you get to walk away from is really income, which as you know, is taxable.
Here’s an example of how you could get taxed on a short sale, where you sell your home for less than you owe on the mortgage:
Say you have a $100,000 mortgage on your house. You short sell your house and net $75,000 after sales expenses. You repay your lender that $75,000, creating $25,000 in forgiven debt.
The IRS will add that $25,000 to your taxable income. So if you have no deductions and you’re in a 28% tax bracket, you’d owe $7,000 ($25,000 x 0.28) in tax on that forgiven debt.
Up until the end of this year, you can escape that forgiven debt tax because Congress created an exemption for you back in 2009. Unfortunately, that exemption expires at the end of 2012.
If you qualify for a foreclosure avoidance program, like a short sale (or any of the other ways that reduce what you owe, below), but you can’t close your deal until 2013, you could face a huge tax bill. A tax bill large enough to put you right back into another financial tailspin.
Principal reduction: The lender shaves off a specific amount from what you owe on your mortgage.
Recasted mortgage: If the lender reduces what you owe overall to lower your monthly payment, that reduction would count as forgiven debt.
Second mortgage waivers: The bank says you no longer have to repay your second mortgage and just wipes out that loan.
Foreclosure: You’d be taxed on whatever is left on the mortgage that you didn’t pay.
Finally, any time you find yourself in a cash-out situation, such as a home equity line of credit, exercise care, because not all of it will be necessarily forgiven.
There’s not a soul in Congress who’s opposed to extending the forgiven debt exemption, but it still might not happen. With the federal budget in full-on crisis mode, any legislation that concerns a tax issue faces an uphill battle.
But wait. It gets worse. Traditionally, Congress lumps all the expiring tax provisions into a single bill. That bill is among the last things Congress passes before it goes home in December. That means the odds of Congress passing the forgiven debt extension by itself aren’t good. In the last 15 years, Congress has never passed a bill extending only one expiring tax provision.
Going through the foreclosure process is incredibly stressful, even if things work out OK in the end. Having to sell your home because you can’t afford it anymore is devastating. Having the IRS send you a tax bill for the forgiven debt? That’s just cruel.
Contact Linda Smith Here:
Fax: 419 352-2654
VM: 419-354-4871 ext.113
By: G. M. Filisko Published: October 15, 2010
Don’t let pet odors derail your home sale.
Air your house out. While you’re cleaning, throw open all the windows in your home to allow fresh air to circulate and sweep out unpleasant scents.
Once your house is free of pet odors, do what you can to keep the smells from returning. Crate your dog when you’re out or keep it outdoors. Limit the cat to one floor or room, if possible. Remove or replace pet bedding.
Scrub thoroughly. Scrub bare floors and walls soiled by pets with vinegar, wood floor cleaner, or an odor-neutralizing product, which you can purchase at a pet supply store for $10 to $25.
Try a 1:9 bleach-to-water solution on surfaces it won’t damage, like cement floors or walls.
Got a stubborn pet odors covering a large area? You may have to spend several hundred dollars to hire a service that specializes in hard-to-clean stains.
Wash your drapes and upholstery.Pet odors seep into fabrics. Launder, steam clean, or dry clean all your fabric window coverings. Steam clean upholstered furniture.
Either buy a steam cleaner designed to remove pet hair for around $200 and do the job yourself, or pay a pro. You’ll spend about $40 for an upholstered chair, $100 for a sofa, and $7 for each dining room chair if a pro does your cleaning.
Clean your carpets. Shampoo your carpets and rugs, or have professionals do the job for $25 to $50 per room, depending on their size and the level of filth embedded in them. The cleaner will try to sell you deodorizing treatments. You’ll know if you need to spend the extra money on those after the carpet dries and you have a friend perform a sniff test.
If deodorizing doesn’t remove the pet odor from your home, the carpets and padding will have to go. Once you tear them out, scrub the subfloor with vinegar or an odor-removing product, and install new padding and carpeting. Unless the smell is in the subfloor, in which case that goes next.
Paint, replace, or seal walls. When heavy-duty cleaners haven’t eradicated smells in drywall, plaster, or woodwork, add a fresh coat of paint or stain, or replace the drywall or wood altogether.
On brick and cement, apply a sealant appropriate for the surface for $25 to $100. That may smother and seal in the odor, keeping it from reemerging.
Place potpourri or scented candles in strategic locations. Put a bow on your deep clean with potpourri and scented candles. Don’t go overboard and turn off buyers sensitive to perfumes. Simply place a bowl of mild potpourri in your foyer to create a warm first impression, and add other mild scents to the kitchen and bathrooms.
Control ongoing urine smells. If your dog uses indoor pee pads, put down a new pad each time the dog goes. Throw them away outside in a trash can with a tight lid. Remove even clean pads from view before each showing.
Replace kitty litter daily, rather than scooping used litter clumps, and sweep up around the litter box. Hide the litter box before each showing.
Relocate pets. If your dog or cat has a best friend it can stay with while you’re selling your home (and you can stand to be separated from your pet), consider sending your pet on a temporary vacation. If pets have to stay, remove them from the house for showings and put away their dishes, towels, and toys.
G.M. Filisko is an attorney and award-winning writer whose former mutt Marley no doubt created a wet-dog aroma in her condo that still remains. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
Contact Beth Ann here
Fax: 419 592-7021
Facebook’s IPO and subsequent stock value points up a simple truth: It’s easy to get caught up in the notion of getting rich quick. But there’s no surer way to wealth than home ownership.
As Facebook’s IPO (http://abcnews.go.com/Business/facebook-ipo-roadshow-poised-hit-road/story?id=16263419#.T6LGAZpYtXA) approached, it was easy to start traveling down the “what if” path:“What if I had equity in Facebook?!? How rich would I be?”
If my parents had only bought me Berkshire Hathaway stock for my first birthday in 1962, I’d have made some serious money in stock equities.
Alas, they didn’t recognize the hot stock of their era any more than I would recognize the hot stock of mine.
Like most Americans, it’s home equity (http://www.houselogic.com/home-advice/equity-loans/home-equity-line-tips/), not stock equity, that will pad my bank account when I hit the retirement finish line.
About two-thirds of Americans invest in home ownership (http://www.houselogic.com/home-topics/the-home-ownership-matters-blog/), but only half of us invest in stocks. (I suspect this is in no small part because we have to make our mortgage (http://www.houselogic.com/home-taxes-financing/home-loans-mortgages/) payments every month or the bank comes and takes our houses back.)
The fact is, more of us are getting rich by buying and paying off our homes than by picking the next Facebook.
Here are some interesting facts from the National Center for Real Estate Research:
•6 in 10 of us have more home equity than stock equity.
•One-fifth of Americans’ total net worth is home equity.
•Home owners accumulate, on average, $167,000 in their lifetimes, compared to $42,000 for renters.
•The median wealth for the poorest American home owners, those earning less than $20,000, is 81 times that of renters with similar income.
In a recent study that took into account falling home prices, buying was still more likely to generate wealth than renting, simply because renters are more inclined to spend instead of save and invest in stocks (http://kenhjohnson.com/tag/wealth-accumulation/#19_1).
The bottom line is this: Even if renting appears cheaper on a spreadsheet, the forced savings of home ownership leads to wealth more reliably than renting. Many of us simply don’t have the willpower or motivation to save our discretionary income and invest it in stocks.
So unless you’ve got the inside track on the next hot future IPO, keep making your mortgage payments.
What’s worth more right now, your
IRA or your home?
Call Susan Langendorfer Today
Fax: 419 891-1092
VM: 419-897-2700 ext. 229
Written by Mary Ann Coleman, Manager Welles Bowen Realtors Oregon Office
Today’s real estate market is a challenge for even the most experienced home buyer or seller. The rules change almost daily and if you are not in the know you might find yourself in trouble. A real estate transaction has so many sides and facets than unless you spend 24/7 keeping yourself updated on the nuances of a deal you will not get the best bang for your buck. That’s where the expertise and experience of that extra hand of a Realtor® can be invaluable.
For the home seller a Realtor® will…….
For the home buyer a Realtor® will…….
There is so much more that a Realtor® brings to the table. These are only a few examples, but I assure you that your buy or sell will go so much smoother if you use the services of an established agent. The best part is that you will have a friend for life! Have a fun transaction!
Fax: 419 754-1408
VM: 419-754-1405 ext. 100
Anne Murray, Realtor
VM: 419-782-0978 ext. 133