Tax Prep by Deb Posted December 29, 2007 Report Share Posted December 29, 2007 Does anyone have a good site that explains H.R. 3648 better? Everything that I have read seems to be pointing to refinancing and having a portion of debt forgiven, but is there anything you have read that indicates it's also good for short sales, or even foreclosures? I have a client that got themselves into a mess by buying a second home with the intent of renting one of them out, the problem is our market here is flooded with rentals and the second home is sitting empty. Their primary residence was purchased for 595,000 and is currently worth about 365,000. The second home which was just purchased (within a couple of months ago) is about $465,000. They can make one payment but not both and would like to let the higher debt loan go and move into the other property. Any thoughts as to whether they would qualify under the provisions of this new bill? Any research site you know of that might help me understand this better? Thanks in advance, Deb! Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted December 30, 2007 Report Share Posted December 30, 2007 http://www.natptax.com/2007mortgageact.pdf taxbilly Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted December 30, 2007 Author Report Share Posted December 30, 2007 http://www.natptax.com/2007mortgageact.pdf taxbilly Thanks TAXBILLY. It's pretty much what I have already read. I guess I'm looking for something more specific that what I'm seeing. I guess I'm trying to look to deep. It appears that it would apply to any mortgage debt that is forgiven for whatever reason as long it is for their principle residence and not more than the thresholds that were mentioned. I will keep looking and if I find anything I will let you all know! In the meantime if you come across anything please share it as I'm sure we are going to see a lot of this coming! Deb! Quote Link to comment Share on other sites More sharing options...
Kea Posted December 30, 2007 Report Share Posted December 30, 2007 It appears that it would apply to any mortgage debt that is forgiven for whatever reason as long it is for their principle residence and not more than the thresholds that were mentioned. I would be interested in seeing what you find out. I hadn't even considered the possibility. I have a client whose husband died in November. Due to his large medical bills, she will soon be filing bankruptcy (yes, they had insurance). I don't know if she will be able to sell the house or if they will include it in the bankruptcy (not required in Texas, but she can't afford it on her $10/hour income). They've only had the house 3 years, so there is little equity. But if it isn't sold, and the principal is forgiven in the bankruptcy and that gets added to her income, she will never get the tax paid off. If this new law could help her, I would love to be able to give her that news. It might be the only good news she gets for awhile. She's only 30 and having to start her life over as a single woman. If I can help her minimize the debts related to her husband, it would be great. Thanks. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted December 30, 2007 Author Report Share Posted December 30, 2007 I would be interested in seeing what you find out. I hadn't even considered the possibility. I have a client whose husband died in November. Due to his large medical bills, she will soon be filing bankruptcy (yes, they had insurance). I don't know if she will be able to sell the house or if they will include it in the bankruptcy (not required in Texas, but she can't afford it on her $10/hour income). They've only had the house 3 years, so there is little equity. But if it isn't sold, and the principal is forgiven in the bankruptcy and that gets added to her income, she will never get the tax paid off. If this new law could help her, I would love to be able to give her that news. It might be the only good news she gets for awhile. She's only 30 and having to start her life over as a single woman. If I can help her minimize the debts related to her husband, it would be great. Thanks. Kea, From what I have already found out she should be O.K. If you go back to either page two or three of this forum I posted a link to another web site that had some excellent examples of tax consequences of foreclosure, short sales, ect... Since then this law has passed, and the way I see it your client will fit the bill as to what it was intended for. Try this link: http://www.realestateinvestingtax.com/shortsale.shtml Deb! Quote Link to comment Share on other sites More sharing options...
jainen Posted December 30, 2007 Report Share Posted December 30, 2007 >>it would apply to any mortgage debt that is forgiven << No, it is only for ACQUISITION debt. This is another case where tax planning should NOT be the primary factor. Your client is overly leveraged in a declining market; he should seriously consider taking immediate action regardless of whether he can turn to the government for help. I suggest he start by calling the mortgage company. They can't be too pleased about him buying a new home right before walking away from the old one. They probably have no use for another empty house in that depressed neighborhood, so they might not foreclose and may even refuse to let him cancel the debt by selling or refinancing. Since he has other assets they might force him into bankruptcy instead. His new lender is also going to be watching this closely. If he abandons one loan, the terms of his new loan might automatically throw him into default there as well, again with a risk of bankruptcy. There is even the potential to be accused of fraud since he apparently took on the new loan without the ability to make payments. In that case, even bankruptcy won't help him and taxes will be the least of his problems. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted December 30, 2007 Author Report Share Posted December 30, 2007 >>it would apply to any mortgage debt that is forgiven << No, it is only for ACQUISITION debt. This is another case where tax planning should NOT be the primary factor. Your client is overly leveraged in a declining market; he should seriously consider taking immediate action regardless of whether he can turn to the government for help. I suggest he start by calling the mortgage company. They can't be too pleased about him buying a new home right before walking away from the old one. They probably have no use for another empty house in that depressed neighborhood, so they might not foreclose and may even refuse to let him cancel the debt by selling or refinancing. Since he has other assets they might force him into bankruptcy instead. His new lender is also going to be watching this closely. If he abandons one loan, the terms of his new loan might automatically throw him into default there as well, again with a risk of bankruptcy. There is even the potential to be accused of fraud since he apparently took on the new loan without the ability to make payments. In that case, even bankruptcy won't help him and taxes will be the least of his problems. Thanks Jainen, Actually I should have stated Acquisition Debt, which is the case, this property has never been refinanced since acquiring it. They fell prey to a succor loan of interest only, and in the meantime the market dropped drastically. We just discussed your other points yesterday, and what really has him concerned is that when he went to make his first payment the mortgage had aleady been sold, and guess to whom? The same mortgage company that holds is other note! I recommended perhaps going to an attorney, and I have a feeling that's were this all heading anyway. As odd as all of this sounds, I really do believe he thought he had this all worked out and would have been able to make both payments. When he purchased the second home he already had a renter for his first home however they bailed on him after everything went through. I have know this client for about 10 years and he has always been pretty good with his finances, I just think he made a terrible mistake and now is facing terrible consequences! As always thanks for your imput! Deb! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted December 31, 2007 Report Share Posted December 31, 2007 Also, Kea, debt forgiven in Bankruptcy is never taxable, so that is one problem she will not have. Quote Link to comment Share on other sites More sharing options...
Kea Posted December 31, 2007 Report Share Posted December 31, 2007 Also, Kea, debt forgiven in Bankruptcy is never taxable, so that is one problem she will not have. Thanks KC. I don't see many bankruptcies, but I thought I remembered from a very long ago class that it depended on the chapter of bankruptcy. Under one it was taxable and under the other it wasn't. I know a recent law made it much harder to file bankruptcy. Since I am now aware of a client about to file bankruptcy (versus only seeing it at tax time), I really need to update my research. Thanks! Quote Link to comment Share on other sites More sharing options...
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