Great News for People Who Did Short Sales in 2012 and 2013 in California!

Great News for People Who Did Short Sales in 2012 and 2013 in California!

Just got this great letter and had to pass it along!

December 4, 2013

Dear Robin,

The good news just keeps continuing.

As we anticipated, C.A.R. today received a letter from the California Franchise Tax Board (FTB), obtained by the State Board of Equalization, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.

Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales.

We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California. We would like to thank Sen. Boxer and BOE member George Runner for their leadership in obtaining this guidance from the IRS and FTB. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year.

Sincerely,

Kevin Brown
2014 President
CALIFORNIA ASSOCIATION OF REALTORS®

Copyright © 2013 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.)

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Should I Short Sale My House in Livermore, Danville, Pleasanton or the Tri-Valley Bay Area Now or Wait?

Should I Short Sale My House in Livermore, Danville, Pleasanton or the Tri-Valley Bay Area Now or Wait?

I have had many people ask me whether they should short sale their house in Livermore, Danville, San Ramon, Dublin, the Bay Area, Tri-Valley Area of California now or wait until the market improves and do a traditional sale.

Well, based on the real estate trends, mortgage lending history, and economic condition of the state, it is probably going to take another 7-10 years for the market to begin to turn around and recoup some of the home value you have lost, and there is no guarantee that in that time your home will even reach the price you paid or owe  if your purchased your refinanced home to get equity out between 2004 and 2007.

If you are in a bad situation and you owe more money on your home than it is worth and you can no longer afford to make the payments on the property, or you have another reason that you need to move out the home or sell it (for example, job relocation, medical condition that does not allow you to climb stairs and you own a two story home, etc.—lots of many possible scenarios), then you will want to get your home listed ASAP so you can get an offer, the short sale processed and the transaction closed BEFORE the end of 2012.

The typical lender takes 30-90 days to process a short sale once you have an offer which could come right away or take 30+ days to get. Then there is a 30 day escrow period for the buyer to complete their inspections, get their loan in place and close the transaction. So, on an average transaction, you are looking at 3-6 months from start to finish. Depending upon the type and price range of property you have, the desirability of your neighborhood, and who your lenders are, it could take you a year or more to get through the short sale process, so do not wait.

What’s the rush?

The reason you will want to list right away rather than wait is because

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation ends at the end of 2012!

According to the IRS website, http://www.irs.gov/individuals/article/0,,id=179414,00.html

 “If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.”

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.”

 This means that if you short sale your primary residence, then you should not have to pay taxes on the forgiven debt!

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.”

Since the Act is set to expire at the end of 2012 and so far, I have not heard talks of extending it, probably due to the fact that the country needs the tax money, NOW is the time to short sale if that is the route you are considering taking. If you miss the end of the 2012 calendar year deadline and they do not extend the act, you may end up being responsible for paying taxes on all of the forgiven debt on your home if you short sale later or even let it foreclose. Yes, if you let you home foreclose, you may still owe taxes on the property.

Most people cannot afford to pay taxes on an extra $100,000 or more of  “income,” especially when that income is only on paper via the 1099 that the lender will issue to you and not actual money deposited into your account.

I have been listing and processing short sales for 5 years, before most agents even knew what they were, and have successfully closed so many short sales that I have earned the designation of Short Sale Genius Elite Master. I am also HAFA certified so that I can assist people who qualify for the HAFA program short sale their homes and receive up to $3,000 to assist with moving costs.

I have been doing short sales so long that I have already started helping past short sale clients purchase new homes!

I provide free short sale consultations for people who are considering short selling their home or investment properties. Whether you just want to learn more about what a short sale is, what some of the alternatives you may have to doing a short sale, or if you are ready for us to meet for me to list your home, I would be happy to talk to you. Feel free to give me a call at 925-289-1432 or send me a message through my blog and I will be happy to discuss your situation with you.

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