Foreclosures and Short Sales and Taxes, Oh My! - NathanBangs.com

From Tampa to St. Petersburg and beyond, homeowners on both sides of the bridge have been impacted by the economic downturn. Though the housing market is recovering steadily (albeit slowly), there are still plenty of short sales and foreclosures on the market. Meanwhile, the holiday season is always an interesting time in real estate; there may be less inventory on the market, but most buyers and sellers are more motivated. This year we have another twist: impending changes in tax codes that have a significant impact on real estate investment. Here's a look at what you need to know this holiday housing season.

Foreclosures

For distressed homeowners who have already initiated the foreclosure process, here comes some welcome news: Both Fannie Mae and Freddie Mac have announced that they'll suspend bank repossessions during the holiday season. Freddie Mac stopped on December 17, and Fannie Mae will halt repossessions starting tomorrow. Bank of America will follow suit, both on its own repossessions and those it services for investors. Other lenders have historically done the same, but have not made the announcements yet.?

Both home buyers and sellers should remember that this reprieve does not affect other administrative aspects of the pre- or post-mortgage process. If you as a homeowner have already initiated the foreclosure process, prepare to continue along that trajectory. And if you're in the middle of purchasing a foreclosed home from the bank or on the market for a foreclosure, worry not! You shouldn't see too much delay due to the holidays.?

Short Sales

During the three months ending September 30, short sales among homeowners who had fallen behind on payments were up 22% over the previous year, nationwide. Short sales among homeowners who were current on their mortgage payments had jumped 17% over the previous year. Short sales are generally preferable to foreclosures because they have much less impact on the homeowner's credit. In a short sale, the bank agrees to sell the home for less than what the homeowner owes the bank. The bank then has no more responsibility for the property, and the homeowner is released from an unaffordable mortgage.?

Currently making short sales even more attractive is the Mortgage Debt Forgiveness Act. Under this bill, homeowners who sell their homes via short sale do not have to pay federal taxes on their unpaid mortgage debt (the difference between what their home sells for, and what they actually owe the bank). The Act expires on December 31, and it's not certain to be extended. The average amount of forgiven debt: $95,000, which would carry some pretty hefty taxes. Thus many homeowners are especially motivated to complete short sales and avoid a possible tax hit in the new year.?

Real Estate Taxes

In addition to the potential end of the Mortgage Debt Forgiveness Act, several other real estate-related tax changes could be on the horizon. For instance, the mortgage interest deduction may be capped, or it may not be available to high-income earners. Furthermore, changes to capital gains taxes may impact people who invest in real estate or own second homes. A complete summary of potential tax changes can be found here.?These tax changes mean that there are more motivated people on both sides of the housing market. Real estate investors will be looking to buy properties before the end of the year, while sellers will be looking to avoid additional capital gains taxes by selling before the close of 2012.?

This holiday season, the real estate market will certainly offer hope and opportunity for many. If you're looking to buy or sell a home, be sure to talk to a qualified real estate agent. An agent can explain local market conditions and offer expertise on how to navigate current market conditions.?

Source: http://www.nathanbangs.com/Blog/Foreclosures-and-Short-Sales-and-Taxes-Oh-My

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