If you had mortgage debt forgiven this past year, whether it was through a short sale or perhaps mortgage modification then you may be able to claim special tax relief and exclude the debt forgiven from your income. That is because the Mortgage Debt Forgiveness Debt Relief Act of 2007 allows for owners of primary residences to avoid paying taxes on this forgiveness under certain circumstances. Here are 10 facts directly from the IRS in regard to the Mortgage Debt Forgiveness as we approach the April 15^th tax filing deadline:

1) Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2) The limit is $1 million for a married person filing a separate return.

3) You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4) To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5) Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6) Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7) If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9) If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10) Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, please visit http://www.IRS.gov and as always consult a tax professional with specific questions you may have.

When thinking of doing a short sale, be prepared with documentation the banks will request.

Simular to when you purchased a home, negotiating a short sale is like a reverse purchase and requires certain documents.

Have the following information ready:
– Bank or Lending Institution and Loan #
– Last 2 years of tax returns
– Lastest 2 months of bank statements
– Latest 2 paystubs

Create a filing system so that you can continue to add to the file, as the banks will request updated information during the short sale process. Keeping a good file system in place will remove some of the stress of finding documents when needed.

If you have any questions about the Short Sale process, we provide FREE confidential consultations. Don’t hestitate to contact us.

Rivera/Mueller Team
Al Rivera @ 602-750-7141
Brigitte Mueller @ 480-620-8593

Let’s face it, there are many of us struggling on a day to day basis to stay on top of our monthly bills. The rate of unemployment climbs, the rate on our mortgages climb, and many of us have fallen behind.

The so-called Loan Modification programs out there have not saved those in trouble. The percentage is so low and the reality is that it does not resolve your problem. It may give you temporary relief, if that, and while you are waiting for the banks to modify your loan you are falling further and further behind. It’s a known fact that you cannot short sell your home when you are in the loan modification cycle, and by the time you find out you don’t qualify for the modification – you are so far behind there is no hope of catching up.

The sad truth is that many of us must give up our homes, but think twice before you go to foreclosure. Foreclosure may not be the best solution for you.

While selling your home may be a tough decision, the dream of homeownership is NOT dead. A typical homeowner can purchase a new home within 2-3 years after the short sale of their current home, while a foreclosure prevents you from purchasing for 7-9 years on average.

We offer FREE private consultation to help answer your questions about the option of a Short Sale.

Give us a call.

Rivera/Mueller Team

Brigitte @ 480-620-8593
Al @ 602-750-7141

By Danielle Hale, NAR Research Economist

Buy a home and you get a tax break! As part of the Housing and Economic Recovery Act of 2008, a First-time Homebuyer Tax Credit is now available. However, this limited-time tax break ends in mid-2009. A homebuyer tax credit has been available for first-time homebuyers in Washington, D.C. for many years, and now first-time homebuyers nationwide can take advantage of a similar benefit. In this commentary, I’ll give a quick overview of the credit-something every Realtor® should know.

Who is Eligible?
First-time homebuyers who purchase a principle residence on April 9, 2008 and before July 1, 2009 are eligible for the credit. A first-time homebuyer is someone who has not owned his/her principle residence for a 3-year period before the date of purchase, and someone who has never taken advantage of the DC first-time homebuyer credit. In the case of married couples, both must be first-time homebuyers. For other groups purchasing a home, the statute is unclear. Purchasers should consult a tax advisor.

How does it work?
The credit directly reduces the total amount of taxes owed and is refundable. When the buyer files his/her taxes, for the year he purchased his home (2008 or 2009), he will be able to subtract the amount of the credit from his Federal income tax liability, increasing his refund or reducing the amount he owes.

How big is the tax credit?
The tax credit is equal to 10% of the purchase price of the home up to $7,500. The full credit is available for single buyers whose adjusted gross income is less than $75,000. If the buyer’s adjusted gross income is greater than $75,000 and her home purchase qualifies her for the full credit, the credit phases out according to the chart below.

For married couples filing jointly, the credit begins to phase out at an adjusted gross income of $150,000 per this chart.

What about Repayment?
The tax credit is not completely free money for buyers to keep. It has a payback provision that makes it similar to an interest free loan. Two years after the credit is claimed, buyers begin repayment so that the credit is paid back in full over the course of 15 years. For those qualifying for the full credit, the payback amount is $500 per year. Those getting less than the full credit pay equally over the 15 years (which is a rate of 6.67% per year). If a qualifying home is resold before the credit is repaid, the seller will have to immediately pay the outstanding balance of the credit. If the home is sold at a loss, then nothing more is owed.

What’s valuable about a credit you have to repay?
Money today is worth more than an equal amount of money in future, which economists call the time-value of money. First, money loses its purchasing power over time due to inflation. Second, you can use the money today to earn interest and repay the principal later-all the while keeping the interest for yourself. For this reason, multimillion-dollar lottery winners prefer taking a lower lump-sum amount than the multimillion dollar amount spread out over many years. Real examples in the PDF will help you illustrate this point to potential buyers.

Are there other conditions I should know about?
• Buyers cannot claim both the DC and the national First-time Homebuyer tax credit
• Purchases by non-resident aliens and purchases financed by proceeds from a qualified mortgage issue are not eligible.
• Any single family residence located in the United States that will be used as a principal residence is eligible. Generally, this is the place where an individual spends most of his/her time. This includes single-family detached housing, condos or coops, townhouses or any similar type of new or existing dwelling.
• The credit will not result in an individual owing additional federal taxes under the Alternative Minimum Tax.
• Home purchases between relatives and other gifts of residences are not eligible for the credit.
• Other tax benefits of homeownership are still in place. Mortgage interest deduction, capital gains tax exclusion, and property tax deduction are some well-known examples.
For more specific questions about the tax implications of the credit, please consult a tax professional.

Mortgage Forgiveness Act Signed into Law

President Bush has signed H.R. 3648 , The Mortgage Forgiveness Act of 2007, into law, sparing homeowners the tax burden associated with canceled mortgage debt.

Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014.

“This is going to make a happy holiday for many homeowners,” President Bush said yesterday before signing the bill in to law. During the press conference he added the following:

“When you’re worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it’s a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes.”

“There’s more work to be done,” Bush added, saying that Congress needs to pass legislation to strengthen Freddie Mac and Fannie Mae, to modernize FHA, and to allow the government to issue tax-exempt bonds for refinancing existing home loans.

H.R. 3648 Summary

Didn’t get around to taking advantage of the Home Improvements Tax Credits in 2006?

You still have time as they extend through December 31, 2007. Tax credits are available for certain improvements that relate to energy efficiency. For example, replacement windows and doors qualify for tax credits up to $500.

Check with your accountant or tax preparer for the information and forms to take advantage of this credit.