No More State Tax on Forgiven Debt

Real Estate for Today’s Magalia and Paradise California Home Sellers and Home Buyers

NO MORE STATE TAX ON FORGIVEN DEBT

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov. 

C.A.R. provides REALTORS® with many legal articles covering a wide range of topics of interest.  Some of the new or newly revised legal articles available at http://qa.car.org/ are as follows:

• Homebuyer Tax Credit Chart 2010.
• Internal Data Exchange (IDX).

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For more information, you can visit my Web site or feel free to give me a call.

Tammy Vertrees, Paradise California Realtor

530-413-8383 Direct
530-872-5428 Office

www.TammyVertrees.com

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© Tammy Vertrees 2010. All Rights Reserved.

Visit Tammy Vertrees on the web at www.TammyVertrees.com for real estate information and to view all available Butte County homes for sale.

 

Technorati Tags: Mortgage Debt,Short Sale advice,Real Estate Talking Points

California expected to cancel tax on forgiven mortgage debts

Real Estate for Today’s Magalia and Paradise California Home Sellers and Home Buyers

California expected to cancel tax on forgiven mortgage debts

By Jim Wasserman
jwasserman@sacbee.com

Published: Tuesday, Apr. 6, 2010 - 12:00 am | Page 6B

Relief appears imminent for thousands of Sacramento homeowners hit with state tax bills for mortgage debts forgiven in 2009.

State lawmakers said Monday they plan to cancel the state tax obligations with a vote Thursday.

Shannon Murphy, spokeswoman for Assembly Speaker John Pérez, D-Los Angeles, said legislation will go before the Assembly Revenue and Tax Committee today and the Appropriations Committee on Wednesday, and will receive a full vote Thursday.

A similar Senate floor vote planned Thursday would send the bill immediately to Gov. Arnold Schwarzenegger, who has repeatedly stated his support. The new bill is similar to one he vetoed March 25. But this time it omits a part he opposed – financial penalties for businesses that routinely seek state tax refunds. Democrats removed the section despite their contention that some firms "fish" for refunds whether or not they're owed.

Monday, Schwarzenegger spokesman Mike Naple said the governor "hopes the Legislature fully addresses the concerns raised in previous versions of this bill."

The new movement means that Californians who got unexpected tax bills of $10,000 or more in recent weeks could soon be off the hook. Most are borrowers who received loan modifications last year or lost their houses in short sales, in which banks accept prices below what they're owed. In both cases, lenders forgave some of the debts owed them, a process that exposes borrowers afterward to taxes.

"We want to get it done before the (April 15) tax deadline," said Alicia Trost, spokeswoman for Sen. President Pro Tem Darrell Steinberg, D-Sacramento. "We don't want to have people jump through hoops."

Many across the state have anxiously waited for the state to resolve the issue before the tax filing deadline – or have filed extensions.

Typically the state and federal governments view forgiven home loan debt as additional income and tax it. But both have backed off amid the housing crash. The federal government has suspended taxes on forgiven mortgage debt from 2007 through 2012. California suspended it for the 2007 and 2008 tax years. But disagreements over the business tax refunds stalled a bill extending it to 2009.

The bill being considered this week, Senate Bill 401, would cancel state tax obligations for forgiven mortgage debt through the 2012 tax year. The Assembly planned Monday to rewrite SB 401 from a bill regarding tax shelters to one that aligns much of California's tax law with that of the IRS. That includes canceling taxes on forgiven mortgage debt and on recipients of federal renewable energy grants.

"We haven't done a tax- conforming bill for four years, so it's important to get that done," Trost said Monday.

Read more: http://www.sacbee.com/2010/04/06/2657410/california-expected-to-cancel.html#ixzz0kZb2uF5e

For more information, you can visit my Web site or feel free to give me a call.

Tammy Vertrees, Paradise California Realtor

530-413-8383 Direct
530-872-5428 Office

www.TammyVertrees.com

Follow me on TWITTER

© Tammy Vertrees 2010. All Rights Reserved.

Tammy Vertrees is a full service real estate agent serving the discerning needs of clientele throughout Butte County, California

Ms. Vertrees specializes in representing sellers and buyers of residential real estate in Paradise, Magalia, Chico, Oroville, Gridley, Biggs, Durham and the surrounding areas.  Ms. Vertrees provides clients with a strong level of comfort, powerful negotiation skills and use of the latest technologies.

Visit Tammy Vertrees on the web at www.TammyVertrees.com for real estate information and to view all available Butte County homes for sale.

 

Technorati Tags: Mortgage Debt,Real Estate Tax

Spring has Sprung on Paradise Housing

Real Estate for Today’s Magalia and Paradise California Home Sellers and Home Buyers

Spring Has Sprung On Paradise Housing

The past 7 days have brought a solid ray of sunshine to the housing market. Not only did the January S&P/Case-Shiller Home Price Index rise for the eight straight month but SUPPRISE, SUPPRISE, SUPPRISE, February’s Pending Home Sales beat market expectations 8.2% (a decline of 0.2% was anticipated. Steven A. Wood chief Economist at Insight Economics, LLC states:

"The S&P/Case-Shiller 20-City Home Price Index ROSE by 0.3% (seasonally adjusted) in January to 146.3, its eighth consecutive increase for the first time since September 2005 - April 2006 at the end of the boom."

“Home prices ROSE in January for the eighth straight month. This trimmed the year-on-year rate of decline to its slowest pace in 2 years. Although home prices are still falling on a year-on-year basis, there are increasing signs that home prices have begun to stabilize, even in some of those areas where the housing boom was quite substantial. In many regions, home prices have actually begun a modest recovery. Even in those areas where housing boomed the most, the rate of home price decline has slowed significantly. However, with unemployment remaining high, with mortgage delinquencies still climbing, and with more mortgage rate resets on Alt-A and Option ARM loans due to take place over the next year, home prices are still at risk for another dip.”

"Pending Home Sales ROSE by 8.2% in February to 97.6, compared with market expectations for a 0.2% decline. Pending home sales are counted when sales contracts are signed and a viewed as a leading indicator of existing home sales. This surge occurred despite the severe snow storms in mid-month and may reflect homebuyers' attempt to purchase before the expiration of the extended homebuyers' tax credit at the end of April. Pending home sales are 17.3% ABOVE their year ago level. The regional composition showed a huge increase in the Midwest, big gains in the South and Northeast, and a moderate decline in the West. However, in every region, pending sales are ABOVE their year ago level."

"Pending homes sales have plunged between October 2009 and January 2010 as the initial first time homebuyers tax credit expired. With the extended tax credit 'now set to expire at the end of April, homebuyers appear to be returning to the market. If that is indeed the case, another sharp run-up in home sales should occur through April before another sharp decline is experienced. A bottom has been reached in existing home sales and a recovery is underway but it is being heavily underpinned by government stimulus."

For more information, you can visit my Web site or feel free to give me a call.

Tammy Vertrees, Paradise California Realtor

530-413-8383 Direct
530-872-5428 Office

www.TammyVertrees.com

Paradise CA Real Estate Talking Points

Real Estate for Today’s Paradise California Home Sellers and Buyers

Talking Points: Homeowners wanting to pay off their mortgage earlier than planned can do so by making extra principal payments.  One extra full principal and interest payment a year will reduce a 30-year loan to about 17 years, and adding the following month’s principal payment to the current one will cut the loan almost in half.  It is important that borrowers tell their lender the extra money is to be credited to principal.  Homeowners should keep records of their payments and review it once a year to be certain the lender has followed directions.   Private mortgage insurance (PMI) generally is required for home buyers whose down payment is less than 20 percent.  PMI may be added to the mortgage payment each month to protect the lender should the borrower default.  By law, PMI generally must be canceled automatically when the loan balance reaches 78 percent of the home’s original value.  However, lenders also may agree to cancel this coverage upon a borrower’s request when the balance declines to 80 percent of the current value, if certain conditions are met. Borrowers who have made their payments on time each month for five years should contact their lender or loan servicer to obtain all the details on cancelling the coverage. Tammy Vertrees, Paradise California Realtor  530-413-8383 Direct 530-872-5428 Office www.TammyVertrees.com