Short Sales Could Mean Big Taxes!

Just When You Think You Are Back On Your Feet, The IRS Keeps You In The Prone Position.

If you are considering a real estate short sale of your home, you should be aware that you may receive a form 1099-C for the amount of the lender’s losses. This is considered loan forgiveness in the eyes of the IRS.

If you have other assets such as saving and you are not insolvent, you may end up being responsible to pay ordinary taxes on the amount of the 1099-C.

If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions. The forgiven debts include money owed after foreclosure or property repossession or credit accounts that you don’t pay. There are exceptions noted below.

If a lender forgives or writes off $600 or more of a debt’s principal (the amount not including interest or fees), they must send you and the IRS a Form 1099-C at the end of the year. When you file your tax return for the tax year in which your debt was written off, the IRS will require that you report the amount on the form as income.

While you may not have received this form from the creditor, the creditor may have submitted one to the IRS anyway. If you don’t list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or, worse, an audit notice. This could end up costing you more than just the original tax bill.

There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. You should consult a qualified tax and legal counsel to see if these circumstances apply.

So, just when you thought you found a way to solve your problems, the IRS makes sure they are there to prevent it from happening.

Mortgage Update: Government Backing Out!

News Not Good For Interest Rates

Government Bailing?

The Fed kept mortgage rates low in 2009 by acting as a buyer of securities issued by or backed by three government-controlled entities: the Government National Mortgage Association (known as Ginnie Mae), Fannie Mae and Freddie Mac. These so-called agency securities provide funding for more than half of all U.S. home loans outstanding.  The government announced that they want to reduce their buying and let the banks step up and own them.  This may cause mortgage rates to rise as we all know banks are more than happy to pass along any incremental risks on a loan to the consumer in the form of higher rates.

The New Jobs Report and Real Estate

The highly anticipated Jobs Report arrived last Friday morning, showing 85,000 jobs lost during December…and while this was a bit worse than expected, the report also carried some good news, in that the prior month’s revisions showed that November actually had a final tabulation of job gains for the month, for the first time since December 2007.

Additionally, the Unemployment Rate remained stable at 10%. While this all seems to indicate some level of improvement in the labor market – you do have to look beneath the surface to clearly understand the present realities for the labor market.

The Labor Department does use a household survey to calculate the Unemployment Rate – and remember, it stayed stable at 10% – but the calculation is determined by how many people are presently in the workforce. And the household survey indicated that last month, 661,000 people left the workforce.

Whoa – what does “leaving the workforce” mean? And where exactly are they going? Let’s take a closer look … Continue Reading