Unless there is another extension which I believe there will be, if a lender modifies you loan it’s taxable. If you do a short sale it’s taxable on the debt you couldn’t pay back.
Underwater homeowners face a tax time bomb
Wednesday, Aug 1, 2012 01:00 PM PDT
The letter from Bank of America Home Loans got right to the point. “We are pleased to inform you that we have approved your Home Equity Account for participation in a principal forgiveness program offered as a result of the Department of Justice and State Attorneys General global settlement with major mortgage servicers.” In the letter, which I obtained from an anti-foreclosure activist, Bank of America offered the homeowner full forgiveness of their entire home equity loan balance of over $177,000. But then Paragraph 5 came with an ominous warning: “Please be aware that we are required to report the amount of your cancelled principal debt to the Internal Revenue Service.”
Under current law, a principal reduction like this would be exempted from tax liability. However, that law, the Mortgage Forgiveness Debt Relief Act, expires at the end of the year, and after that, any mortgage debt forgiveness provided to a borrower will count as gross income for tax purposes, potentially costing millions of families several billion dollars. In the above case, the borrower would be required to pay taxes on the entire $177,000 amount forgiven by the bank, as if it were earned income. And that’s money that struggling homeowners simply don’t have.
“They wouldn’t be able to handle it,” said Peggy Mears of the Alliance of Californians for Community Empowerment, a community organizing group in California that has worked extensively on foreclosure issues. “If they could handle it, they wouldn’t be in arrears with their house notes. They don’t have that kind of money.”
The tax issue could significantly disrupt a still-fragile housing market and rob homeowners of the tools to pull themselves out of mortgage debt. It also represents a final indignity for homeowners who have been abused by the fraudulent mortgage practices of leading banks for years. Just when they think they get relief from their troubles, they get hit with a massive tax bill they cannot pay. “This has the effect of pulling people up with one hand, and hitting them in the face and knocking them over the cliff with the other,” said Sen. Jeff Merkley, D-Ore., who supports extending the law.
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Proprietary OC Housing News home purchase analysis
7829 SAN RAFAEL Dr Buena Park, CA 90620
$374,900 …….. Asking Price
$374,900 ………. Purchase Price
7/28/2012 ………. Purchase Date
$0 ………. Gross Gain (Loss)
($29,992) ………… Commissions and Costs at 8%
============================================
($29,992) ………. Net Gain (Loss)
============================================
0.0% ………. Gross Percent Change
-8.0% ………. Net Percent Change
0.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$374,900 …….. Asking Price
$13,122 ………… 3.5% Down FHA Financing
3.70% …………. Mortgage Interest Rate
30 ……………… Number of Years
$361,779 …….. Mortgage
$95,253 ………. Income Requirement
$1,665 ………… Monthly Mortgage Payment
$325 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$94 ………… Homeowners Insurance at 0.3%
$377 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,461 ………. Monthly Cash Outlays
($252) ………. Tax Savings
($550) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$114 ………….. Maintenance and Replacement Reserves
============================================
$1,789 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,249 ………… Furnishing and Move In at 1% + $1,500
$5,249 ………… Closing Costs at 1% + $1,500
$3,618 ………… Interest Points
$13,122 ………… Down Payment
============================================
$27,237 ………. Total Cash Costs
$27,400 ………. Emergency Cash Reserves
============================================
$54,637 ………. Total Savings Needed
The property above is available for sale on the MLS.
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0.05 miles 3 bd / 1.75 ba 1,212 Sq. Ft. |
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0.23 miles 3 bd / 1.75 ba 1,364 Sq. Ft. |
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0.36 miles 3 bd / 2.5 ba 1,099 Sq. Ft. |
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$409,900 6740 BERRY Ave |
0.54 miles 3 bd / 1.75 ba 1,233 Sq. Ft. |
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$400,000 5702 THELMA Ave |
0.56 miles 3 bd / 1.75 ba 1,424 Sq. Ft. |
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$310,000 6700 HOUSTON St |
0.56 miles 3 bd / 1 ba 1,115 Sq. Ft. |
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$350,000 8171 HOLDER St |
0.63 miles 3 bd / 1.75 ba 1,400 Sq. Ft. |
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$429,000 7107 SANTA RITA Cir |
0.97 miles 3 bd / 1.5 ba 1,300 Sq. Ft. |
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$399,000 6622 SAN HAROLDO Way |
1.01 miles 3 bd / 1.75 ba 1,460 Sq. Ft. |
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$400,000 7252 MONTEREY Ln |
1.01 miles 3 bd / 2 ba 1,347 Sq. Ft. |
