The Mortgage Forgiveness Debt Relief Act Set to Expire on December 31, 2012

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As we are on the cusp of a changing market, many homeowners continue to struggle with underwater mortgages as a result of the housing market crash back in 2007. In fact, the impact was so great that the government instituted a program called the Mortgage Forgiveness Debt Relief Act in 2009 to help offset some of the hardships faced by millions of Americans. Today, that program is set to expire just two short months from now. That’s why it is critical to list your home and successfully short sale it prior to the Act’s deadline so you can save from being taxed on the forgiven or discharged debt.

If you are considering a short sale – it is important to keep this in mind. A short sale entails the bank receiving less money for the property than what is owed on it due to property devaluation and the discharged (or forgiven) debt is considered “income” by the IRS. With the Mortgage Forgiveness Debt Relief Act, homeowners are able to write off this discharged debt and avoid paying taxes altogether on this amount. In some cases, this can amount to a very significant number, forcing the homeowner into an even deeper situation of hardship.

It is important to keep in mind that the tax relief only applies to your primary residence and as long as the short sale is completed prior to the Act’s expiration date, you will not receive a 1099 from the government, nor you will not be required to pay taxes on the amount of forgiven debt.

Since this act is set to expire on December 31^st unless the government extends this yet again, you only have two months within which you need to list the home, find a buyer, receive an offer, have the bank accept the offer and make it to the closing table – all before December 31, 2012. The National Association of Realtors is working hard to extend the deadline for the Act but until there is some concrete action, the December 31^st date stands.

That means you need to start the process now.

For more information about the Mortgage Forgiveness Debt Relief Act, to learn more about short sales or anything else real estate related, I invite you to contact us today! We look forward to helping.

The First Buyer To Make an Offer Is Usually the Most Interested Buyer

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We’ve seen it time and again. A seller eagerly lists their home, finds a buyer with a serious offer but chooses to wait things out and see if other (better) offers come along. While it can happen and it does sometimes, the problem is that there is a process usually followed by buyers and along with it a pipeline. Here is a look at how they lead up to making an offer and how by the time the first buyer seriously considers your home they are likely the most viable one.

Buyers Are More Educated

With the advent of technology, the entire real estate industry has changed. Gone are the days when buyers would rely solely on their agent to find a home to suit their needs. Today, the Internet has taken over. In fact, studies show that over 90% of buyers spend weeks online searching for their perfect home before even talking to an agent.

So by the time a buyer is at your doorstep with an offer, there is a good chance they have thoroughly researched every aspect of the local market. They are fully aware of your competition, have weighed all pros and cons of your home and are seriously interested in your property. After countless open houses and obtaining plenty of education about the real estate market in their area, they know when they see a property that suits their needs. In many cases they are waiting for the perfect one to become available so the minute it does, they make an offer.

By the Time They Make an Offer, They Are Well Into the Process

Where sellers go wrong is to want to wait for more offers. In the process, those very serious buyers that have already made their interest in your home known will likely find another home to suit their needs. Buyers today are savvier than ever before – and with that education that they so readily find and absorb from various sources (the Internet, other publications, their peers, professionals) they have an acute knowledge of the market.

In the process of selling your home, it is critical to keep all factors in mind. Factors such as the condition of the market, your agent’s recommendations, current inventory levels, the number of days most properties remain on the market before being sold and of course prices. Putting all of that into play will change how you handle that first buyer but remember – the first buyer will almost always be your best buyer.
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For a consultation that is customized to your needs, contact us today. We look forward to serving you!

Obama's Healthcare Tax Affects Many Secondary/ Investment Homes

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President Obama’s new Medicare tax on unearned investment income will be one that will change things for our marketplace. Though most of the American population will be unaffected by his new tax imposition, we feel that our area is one that will indeed feel it.

There is much debate about who will have to pay the additional 3.8% taxes on top of already existing capital gains taxes for properties that fall under specific criteria. But one thing is certain. Many of the properties and sellers in our area come will be impacted. To help explain it further, I’ve put together a couple examples after briefly outlining the guidelines for this new tax.

Tax Applicable to Secondary Homes and Investment Properties

The first thing to keep in mind is that this tax will not apply to homes sold that are primary residences. Since most of the properties in our marketplace fall in the other, secondary category, read the following points carefully to find out if you may be subject to additional capital gains taxes. There are some nuances to the tax law as well that have to do with whether or not the property is used for personal enjoyment, is rented out and how long it is rented out for during the year. These (and other) points are mentioned in this concise list of FAQs about the Medicare tax published by the National Association of Realtors.

Gains Over Specified Amount for Individuals and Couples Apply

If the total amount of capital gain exceeds $250,000 for individual sellers or $500,000 for married couples –then the 3.8% tax applies to the amount exceeding the normal capital gains limits. We deal with properties well over this amount regularly and in some cases these properties were purchased a while back, resulting in present day sales that yield significant capital gains.

Upper Level Incomes Are Impacted by New Real Estate Tax

As is the case with most of our clients in this area, the annual Adjusted Gross Income must be at $200,000 for individuals and $250,000 for married couples filing jointly for the tax to be applicable. When these sellers have a capital gain on their property exceeding the capital gains limits mentioned above, the sale involves secondary or income generating properties and they have incomes starting at $200k/$250k, the tax will be applied. For married couples filing separately the AGI threshold is $125,000.

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It is important to keep in mind that both conditions (income and exceeding capital gains limits on relevant properties) must be applicable in order for the tax to be imposed. Here is another report published by the National Association of Realtors outlining additional scenarios where this real estate tax would be applied.

Scenarios to consider:

Example 1:

A property bought by an individual in 1990 for $200,000 that is now worth $700,000 sells accordingly. The capital gains that go above and beyond $500,000 would be taxed an additional 3.8% as long as the seller has an income of at least $200,000. Since the allowable capital gains before taxation for an individual is $250,000 – in this scenario, the amount additionally taxed would be $250,000. The healthcare tax for this property would be $9,500.

Example 2:

A home that was purchased by a married couple filing jointly with a combined income of $220,000 in 2000 for $350,000 and sold today for $800,000 would yield capital gains amounting to $450,000. Since this is $50,000 under the capital gains limit prior to taxation and they earn less than the required income level for couples, they would not have to pay the additional 3.8% tax on the sale of this property.

If you are considering selling your property and are unsure of whether you will be subjected to these taxes in addition to all the other expenses that go along with selling, contact us today.