The settlement by Congress to avert the “fiscal cliff” didn’t only keep some tax hikes at bay for middle-income America.
The 2012 American Taxpayer Relief Act continues to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification — including any principal reduction — on primary property.
The 2012 American Taxpayer Relief Act continues to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification — including any principal reduction — on primary property.
Extension of the tax exemption to Jan. 1, 2014, has many in California breathing more comfortably.
“We’re relieved because it gives homeowners a sense of relief,” Molly Silva Gurrola, of Riverside-based Silva Group, said as she put finishing touches on a mid-century modern home she is listing for an equity-sale. “Now, everyone can make a decision based on their individual needs.”
Don Faught, president of California Association of Realtors and managing broker of Alain Pinel Realtors in the San Francisco area, notified state trade association members of the “good news” through an e-mail blast on Wednesday, Jan. 2.
He advised Realtors to:
Tell their clients to keep their short-sales on the market.
Encourage clients to consult with their own tax advisers about the impact this tax break can have on their situation.
Congress also raised capital gains rates from 15 to 20 percent for high-income earners, he advised, but the capital gains ceiling on the sale of a principal residence remains at the first $250,000 for single taxpayers and at $500,000 for married couples.
“This extension has given us much encouragement,” said Nancy Carmon Petrone, a broker in San Bernardino, where reports suggest that nearly 50 percent of homes with mortgages there are “underwater,” a status given to a property valued at less than the note.
Petrone said there was a lot of stress before the holidays to close a deal on time.
“A lot of homeowners didn’t know what would happen, and held off on doing anything.”
Now that California homeowners have one more year to complete a short sale or loan modification to benefit from the federal tax break that otherwise would have expired Tuesday, analysts say homeowners will be in a better position to think through 2013 strategies with clearer heads.
Faught said he spoke with two agents before New Year’s who expressed concern that a lender was delaying the close of escrow on short sales, in case the extension did not occur.
“The short-sellers were going crazy,” he said. “At one point they considered going into foreclosure, instead.”
Those two deals closed today, Faught said, and one seller called to express thanks for lobbying to keep the exemption intact.
The act has saved individual homeowners thousands of dollars since it took effect in 2007.
“Our surveys tell us that if the principal is reduced by $100,000, it can save a homeowner anywhere from $15,000 to $35,000” on the phantom income under 2012 tax rates, Faught said. “That’s not an insignificant amount.”
Steve Silva, principal of the Silva Group, said he’s already seeing a spurt of short sales coming onto the market. “People’s attitudes are different than a year ago — more positive,” he said. “I think the government made a wise decision to continue this. I see no let-up right now.”
With short-sales fetching higher amounts than a foreclosure, Molly Silva-Gurrola sees yet another emerging trend: Borrowers who are underwater on their loan may begin to come up for air.
She said she planned to meet a client in Corona this week who is at a break-even point on a $475,000 mortgage, but held off on listing her home six months ago because it would have put her underwater on the sale by the time she paid commission and fees. “We’re going to re-analyze that to see if we can now go through a regular sale.”
Faught said these scenarios are a significant reversal from foreclosure activity. Statewide, foreclosure levels fell to 12 percent in 2012, down from 25 percent of all sales.
“Foreclosures are not good for banks or home values,” he said. “We’re not in a housing boom, but we are on a road to recovery.”
Courtesy of: Debra Gruszecki - The Press-Enterprise
“We’re relieved because it gives homeowners a sense of relief,” Molly Silva Gurrola, of Riverside-based Silva Group, said as she put finishing touches on a mid-century modern home she is listing for an equity-sale. “Now, everyone can make a decision based on their individual needs.”
Don Faught, president of California Association of Realtors and managing broker of Alain Pinel Realtors in the San Francisco area, notified state trade association members of the “good news” through an e-mail blast on Wednesday, Jan. 2.
He advised Realtors to:
Tell their clients to keep their short-sales on the market.
Encourage clients to consult with their own tax advisers about the impact this tax break can have on their situation.
Congress also raised capital gains rates from 15 to 20 percent for high-income earners, he advised, but the capital gains ceiling on the sale of a principal residence remains at the first $250,000 for single taxpayers and at $500,000 for married couples.
“This extension has given us much encouragement,” said Nancy Carmon Petrone, a broker in San Bernardino, where reports suggest that nearly 50 percent of homes with mortgages there are “underwater,” a status given to a property valued at less than the note.
Petrone said there was a lot of stress before the holidays to close a deal on time.
“A lot of homeowners didn’t know what would happen, and held off on doing anything.”
Now that California homeowners have one more year to complete a short sale or loan modification to benefit from the federal tax break that otherwise would have expired Tuesday, analysts say homeowners will be in a better position to think through 2013 strategies with clearer heads.
Faught said he spoke with two agents before New Year’s who expressed concern that a lender was delaying the close of escrow on short sales, in case the extension did not occur.
“The short-sellers were going crazy,” he said. “At one point they considered going into foreclosure, instead.”
Those two deals closed today, Faught said, and one seller called to express thanks for lobbying to keep the exemption intact.
The act has saved individual homeowners thousands of dollars since it took effect in 2007.
“Our surveys tell us that if the principal is reduced by $100,000, it can save a homeowner anywhere from $15,000 to $35,000” on the phantom income under 2012 tax rates, Faught said. “That’s not an insignificant amount.”
Steve Silva, principal of the Silva Group, said he’s already seeing a spurt of short sales coming onto the market. “People’s attitudes are different than a year ago — more positive,” he said. “I think the government made a wise decision to continue this. I see no let-up right now.”
With short-sales fetching higher amounts than a foreclosure, Molly Silva-Gurrola sees yet another emerging trend: Borrowers who are underwater on their loan may begin to come up for air.
She said she planned to meet a client in Corona this week who is at a break-even point on a $475,000 mortgage, but held off on listing her home six months ago because it would have put her underwater on the sale by the time she paid commission and fees. “We’re going to re-analyze that to see if we can now go through a regular sale.”
Faught said these scenarios are a significant reversal from foreclosure activity. Statewide, foreclosure levels fell to 12 percent in 2012, down from 25 percent of all sales.
“Foreclosures are not good for banks or home values,” he said. “We’re not in a housing boom, but we are on a road to recovery.”
Courtesy of: Debra Gruszecki - The Press-Enterprise
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