TAX TIP: Important Facts about Mortgage Debt Forgiveness

If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

SOURCE: IRS Tax Tips 2013-31

Ten Tax Tips for Individuals Selling Their Home


The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.Here are 10 tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude. Most tax software can also help with
this calculation.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at IRS.gov or by calling 800-TAX-FORM

It’s Possible to Recover From Foreclosure

Foreclosure is a traumatic experience, financially and emotionally.

But there is life after the ordeal.

“Yes, of course,” said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. “We have no choice but to move on.”

Foreclosure can happen to homeowners for various reasons.

“Some people chose to go that way; other people, it was forced upon them,” Mark said. “Regardless of how you get there, your first step is to rebuild your financial life. You won’t be able to get a fresh start until you deal with what caused your financial crisis in the first place.

It may be possible to negotiate a deed in lieu of foreclosure or short sale-type event that includes removal of deficiency held against you for the balance owed.

“Whatever caused the foreclosure — is it still going on in your life?” Mark said. “Most people think of the foreclosure as the crisis itself, but remember that the foreclosure is an outcome of whatever underlying crisis is going on in your life that either impacted your income or caused expenses that made your mortgage unaffordable.

“You need to identify the root cause of any financial crisis in your life and if those are still going on, what are your steps toward addressing them?”

If your foreclosure was caused by an income crisis, such as unemployment, you need to determine how much income you have for basic needs, such as housing, transportation, utilities, food and any necessary medical care.

“What income and resources do they have and is it enough to cover their base needs?” Mark said.


While you may be tempted, don’t rush back into homeownership.

“That just really shouldn’t be your biggest financial priority if you’re coming off of foreclosure,” said Greg McBride, senior financial analyst at Bankrate.com. “Your biggest financial priority needs to be re-establishing your financial life.”

That’s not to say that you won’t ever own a home again.

“Long term, your goal is probably going to be how long it will be before you qualify for another mortgage,” Mark said. “A key is that it’s never as long as you think, but it doesn’t mean it’s easy, and it doesn’t mean it’s immediate.”

For one thing, you have to wait three years from the date of foreclosure before you’re eligible to apply for a new mortgage insured by the Federal Housing Administration and seven years before applying for a conventional mortgage, said Craig Jarrell, president of the Dallas region for Iberiabank Mortgage Co.

Second, a foreclosure stays on your credit report for seven years and can knock down your credit score by as much as 280 points, especially if your score was high to begin with.

“It may be that it’s wise and prudent to separate from the foreclosure from a time standpoint,” Mark said. “Time heals the credit wounds of the past, so the more time that’s expired since the event, the less impact it has on your credit report and score.”

FICO, the company that developed the widely used FICO credit score, said “it’s a common misconception” that a foreclosure will ruin your credit score for a long time.

“If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years,” it said.


Spend that time re-establishing a pattern of financial responsibility and stability.

“The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations,” FICO said.

So paying your bills on time is critical.

“Don’t make any new late payments after the foreclosure on anything,” Jarrell said.

“That’s the single biggest factor in your credit score,” said McBride. “Second is, keep your debts modest and pay down your debt. That is the second biggest component of your credit score.”

On revolving credit, don’t use more than 10 percent of your available credit.

“If you keep your debt-to-available credit ratio below 10 percent, it actually boosts your credit score,” McBride said. “Anything above 30 percent hurts your score.”

So only use credit that you can pay off on time and in full each month.

You should also use this time to clean up your credit report.

You’re entitled to a free credit report once every 12 months from each of the three national credit bureaus — Experian, TransUnion and Equifax. Get a copy of each and check them for any inaccuracies.

If you find errors on your credit report, dispute them.


“Everybody focuses on credit in this area, but it’s important to point out that you have to rebuild your savings, too,” McBride said.

“If somebody’s been through foreclosure, a lot of times it’s been because they were out of work and so they may have run up other debts like credit cards and depleted all of their savings — perhaps even raided their retirement account,” he said.

“Replenishing those is more important than worrying about your credit.”


You want to be sure that you don’t owe anything on your old mortgage. Sometimes proceeds from a foreclosure sale aren’t enough to cover what’s owed on the mortgage, which would leave you owing the difference.

That foreclosure hangover is called a “deficiency judgment.”

“Do they know whether or not they have escaped any sort of deficiency judgment?” Mark said. “If somebody has negotiated to do a deed in lieu of foreclosure or short sale-type event, they may have negotiated where they’re not going to have the deficiency held against them.”

But he added: “A lot of people won’t know, and if they don’t know, there’s a good chance they’ve got a deficiency judgment. So they need to figure out, OK, the house may be gone, but do you still owe on it?”

A foreclosure isn’t the end of the world, but you must have a clear plan on how you will restore your financial health.

SOURCE: LoanSafe-org

IRS Summertime Tax Tip 2012-08 – Renting Your Vacation Home

Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income.The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:

Rental Income and Expenses

Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.

Limitation on Vacation Home Rentals

When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

Special Rule for Limited Rental Use

If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.

IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses.


Short Sale News: Home Affordable Foreclosure Alternatives Program Extended Through 2013

Please tell anyone you suspect in jeopardy of foreclosure about this breaking news

Don’t assume that because you’ve heard of the Home Affordable Foreclosure Alternatives (HAFA) program, that your friends, family and neighbors have too. There has been a lot of speculation as to whether HAFA would be extended. Recently, we received confirmation that it has been extended through 2013.

The HAFA program was established in 2009 to help the homeowner avoid foreclosure and move on with their lives without the longstanding negative impact of foreclosure. As always, the first step for any homeowner living under the cloud of an unmanageable mortgage is to talk to their bank to see if a loan modification is possible.

If the bank can not approve the loan modification, the homeowner should talk to a Realtor who is a short sale expert; (CDPE designation and has experience selling homes under short sale terms).

Foreclosure and Danger

It is critical for people to understand that a foreclosure posts on an individual’s public record and therefore can cripple opportunities for gainful employment, obtaining future credit and potentially buying an affordable home. This negative impact can last for up to seven years. For people who qualify, HAFA is an alternative to foreclosure.

This YouTube Video produced by the National Association of Realtors explains HAFA.

Why you should get involved

Many of us know families, often they are neighbors, who packed their things and left home without saying goodbye and without warning. They didn’t do it to be cruel or rude. Likely, they did it because they knew they were going to lose their home and they felt overwhelmed and embarrassed.

This is how the story goes

Eight months ago, your neighbor called their bank to tell them they could no longer afford their mortgage. They’ve worked very hard all their lives, and have been responsible with their finances, but something changed and now they’re facing a hardship.

Maybe they have an adjustable arm that has come due and their mortgage increased to the point that they can no longer afford it. Sometimes your neighbor is still paying the mortgage by going into their savings or 401K. They’re trying not to ruin their credit score but they know they’ll run out of money soon so they try to start the process of refinancing or a loan modification.

Unfortunately, the house isn’t worth what they paid for it (it doesn’t appraise) and so they can’t refinance. Every week they call the bank and the bank tells them someone will call, but they never do. Each time they call, they get a different person on the phone. They explain their situation again and again but because they’ve been paying their mortgage, the bank doesn’t “care”.  There are homeowners who haven’t paid their mortgage in many months – they’re the priority. By the way, your neighbor has no idea, that all this time, they’ve been talking to the wrong department within the bank.  They’re going in circles, not making any progress. They feel frustrated, helpless and overwhelmed.

Finally, they don’t have any money left to pay their mortgage and since they’ve already tried for months with the bank, they think it’s futile and they leave. They didn’t have an advocate and now they have a foreclosure that will be on their record for seven years.

The HAFA Short Sale Update

HAFA Supplemental Directive 12-02, effective June 1, 2012, impacts short sales with loans from non-government-sponsored enterprises in which the homeowner is eligible for the HAFA program.

Key enhancements include:

  • Time frame extended: The program has been extended to Dec. 31, 2013. The HAFA short sale or deed in lieu of foreclosure can be initiated up to Dec. 31, 2013; however, the transaction must have a closing date on or before Sept. 30, 2014.
  • Eligibility updated: Occupancy requirements for HAFA eligibility have been removed; however, the property can’t be owned or secured by a business entity.
  • The second lien maximum has been increased from $6,000 to $8,500. 
  • HAFA relocation assistance of $3,000 will be paid only to the primary resident (borrower or occupant) of the property at time the agreement is executed. The resident must vacate upon closing. Vacant properties are not eligible for HAFA relocation assistance.
  • Nonborrowers (tenant, legal dependent, parent or grandparent) can now qualify if occupying the property and must vacate upon closing.

Additional information: 

  •  This policy is effective June 1, 2012, for new HAFA-eligible short sales initiated. It also applies to current HAFA short sales prior to closing.
  • Tenants will be eligible only for the $3,000. Any money available from additional incentive payout opportunities must be paid to the borrower. The HUD-1 must reflect the breakdown.
  • The borrower will be responsible for requesting and managing the tenant relocation assistance, including submitting required proof of occupancy and other documentation.

We can help! For questions and urgent needs (such as a pending default notice and/or pending foreclosure action) contact Debra Hall or George Martin, Jr., as both brokers are trained & experienced local short sale specialist at 208-928-SOLD

Missed the Income Tax Deadline – IRS Offers Help for Taxpayers

The IRS has some advice for taxpayers who missed the tax filing deadline.Don’t panic but file as soon as possible.If you owe money the quicker you file your return, the less penalties and interest you will have to pay. Even if you have to mail us your return, the sooner we receive it, the better.

E-file is still your best option.  IRS e-file programs are available for most taxpayers through the extension deadline – October 15, 2012.

Free File is still available.  Check out IRS Free File at irs.gov/freefile.  Taxpayers whose income is $57,000 or less will qualify to file their return for free through IRS Free File. For people who make more than $57,000 and who are comfortable preparing their own tax return, the IRS offers Free File Fillable Forms. There is no software assistance with Free File Fillable Forms, but it does the basic math calculations for you.

Pay as much as you are able. Taxpayers who owe tax should pay as much as they can when they file their tax return, even if it isn’t the total amount due, and then apply for an installment agreement to pay the remaining balance.

Installment Agreements are available.  Request a payment agreement with the IRS.  File Form 9465, Installment Agreement Request or apply online using the IRS Online Payment Agreement Application available at irs.gov.

Penalties and interest may be due.  Taxpayers who missed the filing deadline may be charged a penalty for filing after the due date. Filing as soon as possible will keep this penalty to a minimum.  And, taxpayers who did not pay their entire tax bill by the due date may be charged a late payment penalty. The best way to keep this penalty to a minimum is to pay as much as possible, as soon as possible.

Although it cannot waive interest charges, the IRS will consider reductions in these penalties if you can establish a reasonable cause for the late filing and payment. Information about penalties and interest can be found at Avoiding Penalties and the Tax Gap.

Refunds may be waiting. Taxpayers should file as soon as possible to get their refunds. Even if your income is below the normal filing requirement, you may be entitled to a refund of taxes that were withheld from your wages, quarterly estimated payments or other special credits. You will not be charged any penalties or interest for filing after the due date, but if your return is not filed within three years you could forfeit your right to the refund.

More information can be found at irs.gov.


VIDEO: Beware of Foreclosure Rescue Scams!

Real Help is Free!

Foreclosure rescue and mortgage modification scams are a growing problem that could cost you thousands of dollars – or even your home.

Scammers make promises that they can’t keep, such as guaranteeing to “save” your home or lower your mortgage, usually for a fee, often pretending that they have direct contact with your mortgage servicer – which they do not.

Tips to Avoid Scams:

  1. Beware of anyone who asks you to pay a fee in exchange for counseling services or the modification of a delinquent loan.
  2. Beware of people who pressure you to sign papers immediately or who try to convince you that they can “save” your home if you sign or transfer over the deed to your house.
  3. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
  4. Never make a mortgage payment to anyone other than your mortgage company without their approval.

The federal government provides the help you need for free!

Just call 888-995-HOPE (4673) for information about The Making Home Affordable Program ® and to speak with a HUD-approved housing counselor. Assistance is available free, 24-7, in 160 languages.


The Language of Distress

The world of distressed sales has its own terminology, as do the government programs for troubled borrowers.

Here’s a guide to help you stay on track.

Bank-owned /real estate–owned (REO): Properties that have been taken back by the lender during the legal foreclosure proceeding to become an asset of the lender bank.

Broker price opinion (BPO): When the estimated value of a property is determined by a real estate broker or firm based on property characteristics, appropriate comparable properties, and market analysis.

Deed-in-lieu (DIL) of foreclosure: When borrowers can no longer make their mortgage payments, a DIL transfers ownership of a property to the lender, allowing the home owner to avoid foreclosure.

Distressed property: A property that is under a foreclosure order (pre-foreclosure), has undergone the foreclosure process, and is now an REO, or is being marketed as a short sale.(See lender-mediated properties.) Historically, this has also referred to properties in dilapidated condition.

Distressed sellers: Home owners in default on their mortgage or at risk of becoming late on their mortgage payments, due to financial hardship.

Forbearance: A reduction or suspension of loan payments as agreed [Read more…]

IRS Rules: 10 Key Points regarding Mortgage Debt Forgiveness

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

  1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
  2. The limit is $1 million for a married person filing a separate return.
  3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
  4. To qualify, [Read more…]

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