LAKE HAVASU CITY PROPERTIES ON REAL ESTATED
Short Sale Tax?
The
current law that forces individuals to pay an income tax when they have
had a part of a mortgage loan forgiven or have been forced to foreclose
because of their inability to pay their mortgage.
“How
can we add insult to injury? As if losing your home isn’t painful
enough, to turn around and tax a family on what the government calls
income.
When homeowners with only
a small amount of equity have no choice but to sell their home,
stagnant or declining property values can cause them to fall short of
the amount needed to pay off a mortgage (short sale). In addition, a
rise in foreclosures is anticipated and already many families have been
harmed by sub prime mortgages and are finding themselves in foreclosure.
The
current tax code requires a lender who forgives debt to provide a Form
1099 to the IRS stating the amount the borrower has been forgiven. That
disclosure applies whether it is a short sale, foreclosure, deed in
lieu of foreclosure or any similar arrangement that relieves borrowers
of the obligation to pay some portion of their debt. If the property is
sold at foreclosure or is sold for less than was borrowed, that
difference is considered income and is subject to the tax.
There
is a new bill in congress called the Andrews-Lewis bill that would
ensure that any debt forgiven on disposition of a principal residence
will not be taxed. It addresses a fundamental unfairness in the lives
of those who find themselves in truly unfortunate circumstances.
For
buying or selling real estate, call Dean Baker owner/Broker Lake Havasu
City Properties, top selling salesperson for 16 years. Cell phone
928-486-3368 or (888) 854-7210.
BAKER ON REAL ESTATE
WHAT IS A REVERSE MORTGAGE?
Originally
designed for retirees interested in keeping their homes but whose
incomes aren't sufficient to support them, reverse mortgages have
typically been used to help people on low fixed incomes make ends meet,
make needed home repairs or pay for large medical bills that otherwise
would be unaffordable.
If you're 62 or older and own your home you have the option of using your house as a source of tax-free income.
You're
eligible to apply for a reverse mortgage, which is a loan against your
home equity. You may receive the money in one of four ways: a lump-sum
payment, a monthly payment, a line of credit or some combination of
these. In most instances, there is no restriction on how the cash is
used and it's not subject to income tax.
Unlike in a traditional
mortgage or home-equity loan, where you pay the loan back on a monthly
basis, you only have to repay a reverse mortgage when you die, sell
your home or no longer use it as your primary residence, whichever
comes first. Lastly, you - or your estate - will never owe more than
the value of your house, no matter how high your loan balance is when
the mortgage is paid.
Reverse mortgage is complex -- and
potentially expensive - product. It's so complex, in fact, that you are
required to receive counseling before applying for one.
One
of the greatest appeals of reverse mortgages is that you can be
guaranteed a source of money for as long as you need it, even if you
live beyond your life expectancy.
You
pay for that guarantee however, through interest, higher-than-usual
closing costs, and servicing fees and in many cases insurance premiums
that protect the lender from the possibility that the loan payments
will exceed the value of your home. Those costs can be and often are
added to your loan balance, but they will be subject to interest. All
interest on your loan balance is tax-deductible, but you or your estate
may only take that deduction when the loan is paid back.
Besides
cost, another potential downside is that since you spend part or all of
your home equity before you die, a reverse mortgage reduces what you
are able to leave your heirs.
For
low-income seniors who depend on Medicaid and Supplemental Social
Security, it's critical that they don't receive more in monthly reverse
mortgage payments than they're going to spend. Money from a reverse
mortgage that sits in a bank account may put a retiree over the
allowable limit for liquid assets set by these public-assistance
programs.
If you have other
resources to draw on first or if you want to leave your heirs the full
value of your home, it may not be the right solution for you. However
this is a safe plan that can give older Americans greater financial
security, supplement social security and medical expenses.
For buying or selling real estate, call Dean Baker owner/Broker Lake Havasu City Properties, top selling salesperson for 14 years. Cell phone 928-486-3368 or (888) 854-7210.