Blog
Owners Who Refinanced May Owe IRS
People who cashed out refinances, or had part of their mortgage debt forgiven when they sold their homes through short sales, will probably owe the IRS a big payback. In 2007, Congress passed the Mortgage Forgiveness Debt Act, but that doesn’t let everyone off the hook. Here are exceptions to the rule:
• Anyone who did a cash-out refinance and spent the money on something not housing related, then got in trouble and lost their home to a foreclosure or short sale, will owe the IRS as if the money from the refinance were earned income.
• The IRS will forgive tax liability only on money from home-equity loans that was spent to improve the property.
• Anyone who lost a vacation home or investment property to foreclosure or short sale will owe Uncle Sam.
• Multi-million dollar homes — lost or sold — are always subject to tax.
CA Gov Signs Tax Break for Short Sales
Governor Schwarzenegger signed into law today, a provision that would waive state taxes on the shortfall of homes that are sold as short sales or foreclosures. This now emulates the law from Federal government, making these “gains” tax exempt. Previously, when an homeowner was forced to sell his or her property for less than what they owed, the difference was considered taxable income. This is welcome relief for tens of thousands of people who have found themselves in a difficult financial position.
HAFA Guidelines
The following article appeared in today’s Wall Street Journal regarding the newly enacted Home Affordabile and Foreclosure Alternatives (HAFA) laws with regard to short sales:
Many lenders negotiate prices for short-sales, in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn’t respond at all, you were too low. By then, you may have lost all interest in buying the property.
The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That’s when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed-property bargain will increase. (…)