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Good news for homeowners underwater on mortgage!
Per the IRS site, if you borrow money and the lender later cancels or forgives the debt, you may have to include the cancelled amount as income for tax purposes, depending on the circumstances. Yes, the debt forgiven by the lender might be taxed like ordinary income and this is just too much of a burden on top of the loss of the home. In 2007 the government passed The Mortgage Debt Relief Act of 2007. This was a blessing for homeowners who needed to sell their home short because it generally allowed taxpayers to exclude income from the discharge of debt on their principal residence. This Mortgage Debt Relief Act expired on December 31, 2012 and then was extended only through December 31, 2013. The State of California followed the federal government and forgave this debt for California taxes through December 31, 2012. For all of 2012, homeowners who sold short have been worried about the California Taxes. And after December 31, 2013? Will these taxes be due for both federal and state incomes taxes?
There are still many homeowners who need to sell their home below market value. Paying taxes on the forgiven debt has been and is a huge concern. THE GOOD NEWS! I am excited to say I received an update from the California Association of Realtors (CAR). Here is the gist of the update: CAR received a letter from the California Franchise Tax Board, which clarified California owners who lost their home in a short sale are not subject to state income tax liability on debt forgiveness they never received in a short sale. And per this update the IRS sent a letter to Sen Barbara Boxer stating debt written off in a short sale doesn’t constitute recourse debt under California law, and thus doesn’t create “cancellation of debt” income to the underwater home seller for federal income tax purposes.
To read more about this please click on this link:
http://www.car.org/newsstand/newsreleases/2013releases/ftbclarification
It is also important to note I am not an accountant and cannot give tax advice so please check with your trusted tax and accountant advisor about your particular circumstances.
Written by Laurie Whitton
Remodeling? This new government rule may impact your wallet!
A Senate Bill SB407, the new 2013 green code, goes into effect as of January 1, 2014. This new rule requires you to replace plumbing fixtures throughout your home if they don’t meet water-conserving standards.
When do you need to do this? Whenever you pull a permit to alter or remodel (improvements) your home. Fortunately, you will not be required to comply with this new rule if you need to pull a permit to maintain or repair your home. I called the county and the building official said they are not sure yet how they are going to enforce it. It may be something similar to smoke detectors and carbon monoxide detectors which must be installed whenever a permit is given and you sign an affidavit stating you complied. This might be the way they go for instance for a roof permit where they are not going into the house, but they are not sure how they are going to adopt it or enforce it.
What repairs can you do that will not require you to replace your fixtures? Here is a list from the Placer County Government website:
Electrical Service Change Out
HVAC Change Out
Re-Roof
Septic and Sewer Line Replacement
Siding or Stucco
Site Work like Retaining Walls, Fences, Walk Ways, etc
Water Heater Replacement
Window Replacement
Other repairs as determined by the building official
What fixtures don’t comply with the new rule?
A toilet that uses more than 1.6 gallons of water per flush
Any showerhead that has a flow capacity of more than 2.5 gallons of water per minute
Any interior faucet that emits more than 2.2 gallons of water per minute
For more information on the SB407 rule and list of water fixtures that are compliant please go to: Water Efficiency Improvements
All About Credit and Credit Scores
Yesterday I sat in on a very informative meeting all about our credit scores and the things we can do to help increase our score as well as things that can hurt our score. I believe this is useful for all of us, especially for any buyer looking to purchase a home. Here are some of the things I learned:
1. 35% of our credit score is based on payment history and negative items for mortgages and installment loans like loans for a car. There isn’t much we can do to change this info other than correct items that have been reported inaccurately.
2. Credit cards can have an 30% impact on the score and we can do many things to increase our credit score with just credit cards. It is important to have a low balance (like 20-30%) compared to available credit. It was interesting to learn it is only Macy’s that reports any balance as 100% of available credit so make sure you pay this off each month. $1 dollar is the same as $10,000, it is not the amount of the charge or the available credit that counts, it is the balance compared to available credit. We can improve and grow our scores by keeping our accounts active (i.e. using our credit cards minimally) and making our on-time payments monthly. If you don’t use your credit card there is no history to add to the credit score so best to use the card every 3-4 months and pay it off.
3. Each time your credit is pulled like for a car loan or a mortgage, your credit score is lowered by 1-6 points. The credit companies allow us ONE 45 day grace period per calendar year to have our credit pulled for the same type of loan. I was surprised to learn that some online companies will auto shop your loan with multiple suppliers and this can mean multiple inquiries and multiple dings to the credit score. Best to make sure this only happens once per year and all within a 45 day period. Rule of thumb—if you are applying for credit it’s going to probably ding your score.
4. Paying off a collection that has been dormant for some time can wake the sleeping giant & reactivate the account—meaning it will look like new negative activity on the collection and this can damage your credit further. Don’t pay a collection until consulting an expert first and figuring out the right strategy.
5. Paying off a collection doesn’t increase a credit score although it may be important for a lender to agree to fund a mortgage. The balance doesn’t hurt your score—it is the “coding” labeling this account as a collection that is doing the damage.
I think one of the most important things I heard has to do with short sales. The credit score will be lowered by mortgage late pays but will not be impacted more by the actual short sale transaction. A foreclosure is different because the coding shows it as a repossession. I have helped over 30 homeowners with their short sales and I know some lien holders went on to code it as if it was a foreclosure and this has been almost impossible to reverse. Good news, apparently there will be a new program in place shortly that will auto fix all these improper postings.
If you are interested in improving your credit score, this company will do a fantastic job. Kevin Kust from Continental Credit Restoration provides a FREE ANALYSIS if you tell them Laurie Whitton, Coldwell Banker, referred you, they will give $100 off their Enrollment fee. Call Kevin Kust at 303-868-0373 or email him at Kevin@contentalcreditllc.com.
