John Beckett's Real Estate Blog

Stepping away from Reno/Sparks Real Estate to post a few quotes from an all time great running back with four different NFL teams.

I don’t give players a chance to hit me.
Eric Dickerson

When they have their hands on their knees, that’s when they’re tired.
Eric Dickerson

I believe if I stay tall and run up high, I can see better.
Eric Dickerson

The basic tax rule on debt discharge is simple: If a lender cancels your debt, that’s taxable income to you, and you and the Internal Revenue Service will get a 1099-C form, and you will have to pay tax on that forgiveness. But Congress gave homeowners a big gift with the Mortgage Forgiveness Debt Relief Act of 2007. It excludes as much as $2 million in debt relief from income taxes through 2012. It applies, however, only to debt on primary residences. If you had a mortgage canceled on your vacation beach condo, you could get stuck. And you’ll still have to pay tax on relief from auto loans, credit cards and similar debts.There are two other exceptions that can affect homeowners: First, if your mortgage — even the mortgage on your beach condo — is discharged in a bankruptcy, none of the debt cancellation is taxable. There’s a trickier issue if you can prove you are insolvent when you get a debt forgiven. Let’s say you have $120,000 in liabilities and $100,000 in assets. You’re insolvent to the extent of $20,000. So, up to $20,000 in debt-discharge income would escape taxes. Any excess would be taxable as ordinary income. Here’s how it’ll hurt: Let’s say you have a $90,000 mortgage and $30,000 in credit card debt, and the credit card companies forgive all of that $30,000. But that’s $10,000 more than you’re allowed, and you’ll have to pay tax on that amount.

Loss of property-tax and interest deductions

There’s no escaping these potential problems. So if you think you may be losing your home, you need to adjust your tax planning. If you lose your house, you also lose future itemized deductions for interest and real-estate taxes. You can deduct the interest on as much as $1 million in principal borrowed to acquire a home, plus the interest on an additional $100,000 in home equity borrowing. There’s no limit on the deduction for real-estate taxes. If you’re paying $12,000 a year in interest plus an additional $8,000 in property taxes, that’s $20,000 in deductions you’ve just lost. In you’re in the 25% bracket, that’s an additional $5,000 you will have to pay in tax. If you couldn’t even pay your mortgage, getting $5,000 more for the IRS is going to be difficult.

The hit from homebuyer credits

The Housing and Economic Recovery Act of 2008 gave first-time homebuyers a refundable credit of 10% of the purchase price, up to $7,500. It was an interest-free loan from the IRS that had to be paid back over 15 years, starting with 2010. The American Recovery and Reinvestment Act of 2009 upped the ante to as much as $8,000 that never has to be repaid — if you stay in the home at least three years. In both cases, you’d qualify as a first-time homebuyer if neither you nor your spouse had had an ownership interest in a principal residence in the previous three years. If you didn’t qualify for the first-time-homebuyer credit, you might qualify for a $6,500 credit. This applies to so-called move-up buyers — those who have owned and lived in their current home for a consecutive five out of the past eight years. The credit does have income limits: $125,000 for singles, $225,000 for married taxpayers filing jointly.But if your home were foreclosed on within 15 years (for a home bought in 2008) or within three years (for a home bought in 2009 or early 2010), it would cease to be your principal residence. The credits would have to be repaid. Remember the extra $5,000 that your taxes went up when you lost your deductions in the earlier example? If you lost your $8,000 homebuyer credit, too, you’d have to find an additional $13,000 for Uncle Sam on top of your normal taxes.  If you qualify as a first-time homebuyer and didn’t buy a house in 2009, start shopping. If you can sign a contract by April 30, 2010, and close by June 30, you can still get the 2009 credit. But please make sure you can make the payments.

State and local tax problems

Lastly, don’t neglect the effect of the foreclosure on state and local taxes. For example, property owners in New Jersey can deduct as much as $10,000 in real-estate taxes from their state tax returns. If you lose your home, you lose that deduction as well.

Read at: http://articles.moneycentral.msn.com/Taxes/TaxShelters/losing-a-home-a-tax-bite-may-be-next.aspx?GT1=33009

Many lenders negotiate prices for short-sales, in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn’t respond at all, you were too low. By then, you may have lost all interest in buying the property. The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That’s when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed-property bargain will increase. Under the old practices, when a financially-distressed seller brought a potential buyer who was offering less than the amount owed on the loan, the bank would order an appraisal or broker’s price opinion (BPO) and then decide whether the offer was acceptable. Under the new federal rules, banks will order a BPO before the property is listed for sale, and will share information on the minimum net proceeds they’re willing to accept with the sellers. If they then bring in a buyer whose offer is equal to or greater than this pre-approved amount, the lender must accept it within 10 days.

Not all sellers are eligible for this program, called Home Affordable Foreclosure Alternatives (HAFA). But since the process is likely to go so much smoother for those who buy and sell under HAFA, I suggest you wait a bit until the program goes into effect and concentrate on finding these “pre-approved” deals. Of course, when you do find a property you like, you may not be the only person bidding on it. To improve your chances of winning, make sure your offer is “clean,” with as few contingencies as possible (though I would never forego a home inspection). Include tax and credit records, and a mortgage pre-approval letter. If you can afford to pay cash, that will put you in an even stronger bargaining position. Still, in your eagerness to win the property, don’t forget that distressed properties often come with added financial burdens. Although under HAFA, the seller is supposed to provide clear title, to protect yourself, your contract must make it clear that you will not be responsible for any of the seller’s unpaid property taxes, liens or second trusts. Also, cash-strapped homeowners often stop paying taxes and homeowners’ association fees during the time between when the house is listed and the deal is closed. To make sure that you’re not on the hook for these expenses, it is recommended that you ask that the bank escrow at least six months worth of taxes and HOA fees, to cover any potential shortfall.

Read more at: http://online.wsj.com/article/SB10001424052748704207504575130053855146896.html?mod=WSJ_Real+Estate_LeftTopNews

Lloyd Flatt was a man who lived life large and had a passion for large bottles of wine. One of those bottles — a six-liter Methuselah of Romanee Conti 1976 sold for $42,350 at Sotheby’s New York more than double its presale estimate.

Flatt, an eye-patch sporting American who began collecting wine long before there were wine critics and magazines such as the Wine Spectator, died in January 2008 after amassing a collection that became almost as famous as he was.

The total sale of his some 1,500 bottles netted more than $1.18 million, handily beating the $573,000-$824,000 pre-sale estimate range at the auction Saturday. Sotheby’s said the winner of the Methuselah was “an Asian buyer.”

“I know that Lloyd, wherever he may be, is smiling at the fun we had in celebrating his wine,” his widow, Laure Flatt said in a statement adding, “We are all happy that Lloyd will be thought of when the corks are pulled on today’s purchases.”

Flatt’s collection (his second, the first was lost in a divorce) was part of a larger wine auction at Sotheby’s which netted $3.4 million.

The clock is ticking on the federal homebuyer tax credit. Homebuyers still have time to buy a home and meet the deadlines, but they will need to act soon and be proactive throughout the transaction. The homebuyer tax credit is worth 10 percent of the home’s sale price, up to $8,000 for buyers who haven’t owned a home in the previous three years and up to $6,500 for buyers who have owned and occupied a principal residence for at least five consecutive years during the eight-year period that ends on the day the new home is purchased.

Here are some tips for last-minute buyers:

• The buyer must enter into a binding contract to purchase the home on or before April 30 of this year. The term “binding contract” isn’t defined in the homebuyer tax credit law and may be subject to interpretation. Generally, the term refers to an agreement that’s signed by both parties and has a deposit in escrow, according to Randi Bennett, an escrow officer at First Centennial Title Co. of Nevada in Reno.
• The purchase must close within 60 days after the binding contract deadline. In this context, that means June 30, not June 29, according to the Internal Revenue Service. The discrepancy between 60 calendar days and two months occurs due to a financial fiction that every month equals 30 days.
• Certain U.S. military, foreign service and intelligence service personnel have an extra year to claim the homebuyer tax credit. These buyers must enter into a binding contact on or before April 30, 2011, and close on or before June 30, 2011.

• Buyers should be upfront with their Realtor about their must-haves and their wish list. Buyers who aren’t realistic could find themselves up against the deadline with fewer houses from which to choose.
• Contract contingencies allow buyers some breathing room to take care of big items such as financing, inspections and the sale of their current home, but contingencies shouldn’t be an excuse to delay once the deal is pending.

If you run into a problem and you no longer want to buy that house, it’s great that you had those contingencies to protect you, but you may not have time to find another property,” she says.

• Anecdotal reports suggest that some buyers have included a tax-credit contingency in the purchase contract. Whether that’s a necessary protection to make sure the deal closes on time depends on the situation and local practices. Either way, buyers should read the contract to make sure the closing will occur before the deadline.
• Buyers should get preapproved for a mortgage, because glitches such as a mistake on a credit report or a lender’s request for tax returns that must be retrieved from the IRS can cause a delay.

You don’t want to wait until the last minute, because you could end up shooting yourself in the foot over something that’s no one’s fault, but you just run out of time.

• Buyers also should allow extra time in case the mortgage lender requires a second appraisal, which can delay final loan approval.

The appraisal process in residential lending is going through some painful changes. It is not uncommon to have a mortgage lender require more than one appraisal.

• Buyers should line up homeowners insurance as soon as the house is under contract. Homeowners insurance is usually routine, but some states have special disaster-related issues. A big storm, earthquake or fire can trigger a moratorium on new policies.
• Buyers should be aware that short sales, in which the seller needs a lender’s approval to sell the home for less than the loan balance, are typically subject to lengthy delays. For instance, one typical requirement is that the final closing statement must be sent to the bank for final approval. That can take five to 10 business days.

It’s an unfortunate irony for homeowners who have experienced a financial hardship, but  buyers who want to claim the tax credit should set some firm deadlines or avoid short-sale homes.

If the home they fall in love with is a short sale, they need to have a very serious talk with their Realtor with the calendar in front of them and say, ‘If we don’t have an answer by this date, we need to look for another house”.

• The IRS has introduced Form 5405 and instructions for taxpayers who want to claim the home buyer tax credit.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=23657587