Orlando Florida Real Estate Blog

Included in H.R. 3221, the Housing and Economic Recovery Act of 2008, were numerous additions, and amendments to real estate tax rules. Below is a brief summary of the tax provisions that were part of H.R. 3221.

Low-Income Housing Tax Credit

• Temporarily increases the volume cap for low-income housing tax credits for 2008 and 2009.

Homebuyer Tax Credit

• The tax credit only applies to first time homebuyers. A first time homebuyer is defined as a homeowner who has no present ownership in a principle residence or has not had ownership of a principle residence for at least 3-years.
• The tax credit is 10% of the purchase price, capped at $7,500. The tax credit is reduced when the buyers adjusted gross income (AGI) is over $75,000 ($150,000 married filing jointly). The amount is reduced by the amount over the allowed AGI divided by $20,000.
• The tax credit does need to be repaid, therefore working more as an interest free loan than a true tax credit. The credit is repaid out of your taxes over 15-years, or a rate of 6.66% of the credit per year. If the home is sold before the credit is paid back, payments are accelerated in the following taxable years by the amount still owed on repayment over the original amount of the credit. However, if your gain on the house does not exceed the amount still owed at the time of sale, you will not owe any more repayment on the credit.
• The home must be purchased between April 8, 2008 and June 30, 2009. The purchase must be of an owner occupied primary residence.
• You cannot get the credit is the property is purchased from a relative, the purchase is financed by a tax exempt qualified mortgage issue/bond, the taxpayer is a nonresident alien, or if the taxpayer disposes of the residence before the close of the taxable year.

Standard Deduction for Property Taxes

• Creation of a new standard deduction for property taxes by nonitemizers in the amount of the taxes, capped at $500 ($1000 for joint filer).

FIRPTA FIX

• Modifies FIRPTA to allow the documents to be given to a qualified substitute instead of the buyer.

Second Home Conversion Tax Offset

• One of the offsets included in H.R. 3221 was the closing of a tax loophole concerning the conversion of a second home to a primary residence and the capital gains exclusion. This offset ONLY applies when a second home is converted to a primary residence and does not affect the capital gains exclusion when a home has only been a primary residence.
• The loophole allowed it so that if a second home was converted to a primary residence and was used as such for at least two out of the previous five years; the homeowner could use the $250,000/$500,000 capital gains exclusion.
• H.R. 3221 closes that loophole and will now only allow the capital gains exclusion to apply to gain received once the house became a primary residence
• Any gain earned prior to January 1, 2009 would be affected by this provision and there are some exclusions of this policy for extended military service (with limitations) as well as change of employment, health conditions or other unforeseen circumstances (not to exceed an aggregate period of two years).
• There is also an allowance of 5-years of gain if a property is converted from a principle residence to a second home.
• The new formula to calculate the gain allowed to be included in the capital gains exclusion would be: Profit from the sale multiplied by the number of days the home was a primary residence over the number of days the home was owned.

• Will I owe the bank money after the short sale is accepted?
• If you are able to negotiate a price and buy it for less then I owe, will the bank come after me for the difference?

When the lender or bank accepts a short sale on the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for.

For example, Mr. Jones owes $300,000 on her home and the lender accepts a short sale for $200,000. There is a deficiency of $100,000 for which the lender can then sue the homeowner. The key phrase is “can sue.” That is the right of the lender. However, that is a practice that almost never happens but, it is a real concern for the homeowner. In most cases, the homeowner wants nothing else to do with the lender once the property is sold.

If the deficiency judgment is granted, it would appear on the homeowners’ credit report just as any other judgment would appear.

Will they be required to pay the difference? During the short sale process, we will negotiate with the lender to not seek a deficiency judgment against the homeowner.

Some lenders as a matter of policy, will not seek a judgment against the homeowner because they feel they have waived their right by accepting a short sale however, if you can get them to openly acknowledge they will not seek a judgment; the owner will be more than happy.

There is a second issue as it relates to the deficiency and that is the 1099.

The lender will issue a 1099 to the homeowner for the difference. In Mr. Jones case, the lender will issue him a 1099 for $100,000. This will have to be reported as income Mr. Jones had received and thus he will have to pay taxes on the $100,000 as though it was earned income.

Upon successfully closing a short sale, lenders will always report a loss to the IRS and issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now official, effectively getting rid of the question "will I be taxed on the Short Sale". Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was potentially taxable income to the borrower. This was the subject of much media attention and led to many questions and concerns from Sellers wondering whether or not they were going to get "hit with taxes" on the Short Sale. The new law, however, temporarily waives these taxes for debts forgiven (as high as35%) from the beginning of 2007 to the end of 2009.

This will effectively put an end to the question from Sellers... will I be taxed on the Short Sale discount. The definitive answer (at least until the end of 2009) is NO! For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to: http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or http://www.whitehouse.gov/news/releases/2007/12/20071220-6.htmlThe bottom line here is that only Acquisition funding can be forgiven by the Mortgage Forgiveness Debt Relief Act of 2007.Foreclosure, Deed in Lieu and Short Sales are all treated the same in regards to taxes. Any cancellation of debt is a taxable event except for any acquisition funding for your primary residence that you've lived in for the last 2 years. Everything else is taxable. However, please see you tax advisor if you have a second home or investment property that you are considering a short sale on. You accountant may advise you that you may have a loss on this investment property that would offset any gain. Please seek advise from your tax advisor.

In my dealing with lenders, we have found that they generally will not seek a deficiency judgment because of the hardship. There are a couple of options that the homeowner has as it relates to the deficiency judgment. In Mr. Jone’s case, he could file bankruptcy to address the judgment. Mr. Jones could also short sale the deficiency with the lender at a later date. In other words, offer the lender a lesser amount as “payment in full.”

Here is an important note. The lender, if they issue a 1099 cannot then sue for a deficiency judgment. The lender can only pursue one or the other. In other words, Mary can’t receive both a deficiency judgment and 1099 from the lender.

It is obviously in the best interest of the homeowner to be proactive and deal with the short sale before it becomes a foreclosure. At least there is a chance that we can negotiate away the deficiency before it even becomes an issue.

The House Financial Services Committee adopted H.R. 6694, legislation designed to reauthorize and reform down payment assistance programs that the Bush Administration banned in July.

A last-ditch effort to head off the Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill that would mend rather than end the practice of down payment assistance.

HR 6694 would allow qualified borrowers with credit scores of 680 or above to use seller-funded down-payment assistance on FHA-backed loans. Borrowers with scores between 620-680 will be subject to risk-based pricing and higher insurance premium fees.

But the bill still needs to be approved by Congress and the President.

Today's committee vote was a positive step toward preserving down payment assistance, but it's far from over. Now more than ever, members of Congress need to know that Americans are watching their vote on H.R. 6694.

I encourage everybody who wants to see seller assisted down payment assistance preserved to tell their representatives in the House and the U.S. Senate that a vote for H.R. 6694 is a vote for the next generation of homeowners.

This is completely new. And I’m excited.

But you’ve got to move on this fast!

I just discovered that Chris McLaughlin and

Nate Jurewicz created a complete “autopilot”

real estate system that puts money in your

pocket … and you hardly have to do a thing.

Seems hard to believe. But they got PROOF.

In fact, Nate loves to brag how he doesn’t

even have to leave his pad to make … get

this … 5 to 6 figures PER MONTH! (I’ll

show you the proof in just a minute)

But there’s a catch … these two guys aren’t

willing to let ANYONE in on their system

unless they first go to their site and read

their fr*ee eBook first:

http://www.shortsalesriches.com/cmd.php?Clk=2575390

They only want to deal with serious people.

I was not kidding when I said 5 to 6 figures per

month … for most of us, that’s serious cash. So

they’re not going to deal with anyone who’s

stuck on stupid. Or got a wish-bone for a

back bone.

Because if you can’t make a ton of cash with

this system, you better check and make sure

you got a pulse. It’s that simple. But you’ve got

to show that you’re committed … the first step

in showing that you can take on a commitment

is by being able to following a few simple

directions.

The first one is to go to

http://www.shortsalesriches.com/cmd.php?Clk=2575390,

and pick up a their F*REE eBook. Fast.

Because word has it, once they get the right

number of investors who understand their

system, they’re closing the doors to new ones.

I mean, if you could rake in that much dough

per month, I’ll bet you wouldn’t want to deal

with anyone who wasn’t at least committed

enough to download and read a no-cost eBook.

So what are you waiting for? Go! Click Below on the Book!

Do I qualify for a Short Sale? Do You....

• Owe more on your Orlando area property than what you could sell it for, especially after real estate commission, closing costs, late payments, interest, etc?
• Have difficulty covering your expenses each month?
• Not have money in the bank to cover the difference of what you could sell your house for and what you owe the bank?

• Feeling the stress mounting with each missed payment and phone call from your bank?
• Have difficulty covering your expenses each month?
• Getting confused as to what your options are at this point?

Foreclosure Sale Date Approaching?• Are you behind on your payments?• Do you owe more than your home is worth?• Have you lost your job, fell ill, or lost a loved one?• Did your "ARM" adjust & you can't keep up?• Do you want to just walk away and not owe a dime?Many Luxury Homes are also facing foreclosure. If you have a Luxury home in Windermere, Winter Garden, or the Orlando area Yes, you can do a Short Sale on Luxury Homes. Call me and I can help!

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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.