On December 20th, Bush signed into law a measure that will change the tax effects for a homeowner in foreclosure. These are critical changes that may change your client’s outlook on a deal (in fact…maybe you lost a deal last year because of this tax burden…it may not be too late to call that client back and revive the deal!)

In a nutshell: If a homeowner who was in foreclosure worked out a short sale agreement with their lender, the amount of debt that the lender “wrote off” is considered as ordinary income to the seller. That means if you negotiated a $50,000 reduction in the payoff to help get the property sold, that seller would have to claim that $50,000 as taxable income on their tax returns (resulting in a potential tax bill between $7,500 and $17,500). Some sellers decided NOT to sell on a short sale for this very reason…but that’s where this new law comes in!

It makes that “income” from written off debt NOT TAXABLE to the seller under certain circumstances! Here are some key points:

- Only applies to their principal residence, not 2nd home/vacation/rentals/speculation. So many of our clients that are in an upside-down situation on non-owner occupied properties may still owe income tax.

- Effective for debts discharged between Jan 1, 2007 and Dec. 31, 2009

- It applies to debt for acquisition, construction, or substantial improvement to the property. This means that if someone had refinanced and taken cash out or paid debts off, then the forgiven debt WILL be taxable. Think about it…they DID get cash out of the property that they never paid taxes on…..now they will have to.

- Forgiveness is limited to $2,000,000 (I think we’re OK there!)

- The amount of forgiven debt will be reduced from the sellers basis in the house. Most sellers will still be able to sell with no capital gains bill as long as they’ve lived in the house for at least 2 years, but people in their homes less than 2 years may still have a surprise! And for investment properties, they will either pay long or short term capital gains based on how long they held the investment.

Cool Part of the Law #2: Another thing that was in this new law that you will probably like…an extension of the tax deductibility of Private Mortgage Insurance (you know, that monthly bill your clients pay when they don’t put down 20% on a home mortgage!). This extension is good through Dec 31, 2010, and again is only applied to acquisition mortgages on a “qualified residence”

Cool Part of the Law #3: And one last part that might apply to your clients…if a client’s spouse dies, they now have 2 years from the date of the death to sell that home and take the full $500,000 exclusion for a couple in a primary residence. After that time, they will only be entitled to the single person’s $250,000 exclusion on the gain they received from the sale. It used to be only in the year of the death, which would be difficult if they passed away towards the end of the year.

Please remember, I am NOT an accountant, and I am not giving you or your clients legal or accounting advice, and neither should you! Anytime you have a client that asks you about the tax ramifications of ANY deal, refer them back to their CPA or attorney for advice.

Call Team Gagliardi for more information about short sales or if interested in purchasing a Port Orange short Sale! Marty is available 24/7 at 386-316-5968 or Mike 386-316-5967!

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Title Week in the beautiful City of Port Orange!

One interesting challenge for the week revolved around a local Port Orange church closing on a refinance transaction. When any non-profit organization sells or mortgages their real property (meaning real estate) the title issues leap to the surface and determining who is authorized to sign on behalf of the church is often a title nightmare. We were able to examine the By-laws and work through the lengthy process involving Trustees and Board Members, congregation approvals, etc.

A second issue arose when a customer wanted to refinance property she was given by her father who since passed away. (She never recorded her deed until after her father died!) This can be a HUGE problem.

Please know that in the State of Florida, the moment a fully executed original deed exchanges hands, you have established delivery and the title to that property passes from the seller to the buyer. If the deed is not recorded in the Public Records, there is no notice of the transfer which may cause serious title issues.

Two more title fires extinguished by the Pros at Professional Title!

Did you know that many things that you do or that happen to you may affect the title to any real property you own, have owned, or might own in the future?? Some judgments attach to real property for up to 20 years!

The second you purchase ground, or come into title in any way, you may be carrying baggage that might attach to that piece of ground for a very long time. Please feel free to contact Cyndi Parker at Professional Title in Port Orange FL at any time if you have questions or concerns regarding your property.

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