Reminders and reflections
As we near the end of another year we take this opportunity to remind you of some important changes with regard to real estate that may affect you or someone you know.
The Mortgage Forgiveness Debt Relief Act will expire at the end of this year if not extended by Congress. This act, which allows those who participate in a loan modification, foreclosure or who sell their property short of its debt are not taxed on the balance owed. Although lenders may choose to pursue the debtor for the difference between the amount originally owed on the home and the selling price of the home, many do not. In cases where the debt is "forgiven" the debtor may be taxed as if that forgiven difference were income. Distressed homeowners who may qualify for loan modification or a short sale are not likely to pursue these options if they will be taxed on the difference which may well lead to further foreclosures. These foreclosed properties then will continue to put downward pressure on the housing market as they are added to our inventory at discounted prices.
If you, or someone you know is in distress because of their home they may want to take action now, before the Act expires.
The Mortgage Interest Deduction is in jeopardy. Proposals in Congress would eliminate the ability of Homeowners to deduct that portion of their house payment that is paid in interest, driving up the cost of purchasing a home and forcing many would-be buyers to re-evaluate their desires to own a home due to the increased cost over the loan term with no tax consideration. If you favor this deduction and agree that homeownership is important to an economic recovery, tell your Congress person.
A 3.8 percent sales tax on sales of second homes and investment properties goes into effect the first of the year. While this does not affect most homeowners, in spite of persistent e-rumors, it will affect many who own second homes or investment properties if they wait until January to sell them.
The tax free profit of $250,000 or $500,000 for married couples is still in force so your primary residence will not be affected unless you make more than that in profit from its sale. Any profit on a second home, rental or other investment property will be taxable for higher income households. Although, if your total income is less than $200,000, or $250,000 for a joint return, you will not be affected. If you earn more than that it is likely the tax will be owed when you sell that property.
The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents. As always, in tax matters, consult your tax professional for advice.
The real estate market continues its recovery, but remains fragile. Strict underwriting requirements of lenders predicated by the Dodd-Frank Act continue to prevent some folks from getting into the market. Still, we are encouraged that building is up, numbers of home sales are growing and we are seeing modest price appreciation in many sectors. For information on your specific neighborhood or type of real estate, contact a Realtor for fact-based insight.
Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.