How WIll a Foreclosure Affect My Income Taxes?


Video Summary

 

How does a mortgage foreclosure affect your income taxes?  Well, it should not affect your income taxes because the lender has not forgiven any of the debt on your loan after they conclude a mortgage foreclosure, so you should not receive a 1099-C, which is a report to the Internal Revenue of how much debt has been forgiven.  So therefore, you should not have any tax consequences as a result of a foreclosure action.

I have seen lenders send out what they call a 1099-A and that is a report to the Internal Revenue Service that the property has been abandoned.  That doesn’t mean that the debt has been forgiven and therefore, I am uncertain as to how the accountants are dealing with 1099-A’s whenever your property has merely been foreclosed.

So if you have any other questions about a 1099-C or a 1099-A, please give me a call at (727) 847-2288 and we can discuss it.  Thank you.

 

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How Will a Short Sale Affect My Income Taxes?

 

Video Sumamry

 

How will a short sale affect my income tax?  Well, there’s any number of questions that have to be answered before I can give you an answer to that question.  The first question is: Is this your primary residence?  If it’s your primary residence, there’s federal legislation involved that may excuse you from having to pay any taxes on the sale of your home.  If you have the original mortgage and you’re short selling, then the lender will not send you what they call a “1099-C”, which is a report to the Internal Revenue Service that you’ve experienced gain from the sale of your house and therefore, you may be obligated to pay income tax on the long-term capital gains.

If you do receive a 1099 for the sale of your residence, then you may not have to pay taxes. You have to file a tax return and show the sale.  However, if you’ve lived in your home two out of the past five years and own the home during that period of time, then you could exempt up to $250,000.00 of gain and that usually eliminates the problem.

Now, let’s say that this is not your primary residence and this is investment property.  Well, then if you have a short sale and the lender sends a 1099 to you, then you will have to pay long-term capital gains.  You may also have to recapture the deductions for your depreciation that you’ve taken on your rental property.  So the best thing to hope for on all these situations if it’s not your primary residence is they don’t send you a 1099 and you take that up with your accountant on how you should report the transaction.

Also, another problem that I’ve been seeing some of my clients experience is a 1099-A and that says the property’s been abandoned and I’m really not sure just how the accountants are treating it because your debt may not be forgiven and they still send this 1099-A to you.

So if you have any more questions about it, give me a call.  I’d be glad to talk to you about it. My phone number is (727) 847-2288.  Thank you.

 

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Can I Prepare Estate Planning Documents for My Relative with Dementia?

 

Video Summary

I have a question from one of our clients who has inquired as to whether or not they can do estate planning for one of their loved ones that’s suffering from dementia. Unfortunately, you can’t do estate planning for someone else.  That’s something that they must do.  Depending on what stage of dementia they’re suffering from, they may or may not still have the mental capacity to sign the estate planning documents.  The test is whether they understand who their natural beneficiaries would be, such as children.  Also, they must be able to have some idea of the extent of their assets.

So if they understand who they would ordinarily leave their money to or who it would go to under the laws of the state of Florida if they don’t have a will, and also, the extent of their money, it may be advisable to complete all estate planning before that person’s capacity diminishes further and it’s too late. If someone’s in the early stages of dementia, they still may have the mental capacity to make a will, but you can’t make a will for someone suffering from dementia or someone that’s not.  It’s something that that person must do.

If you have any questions about that, please give us a call at (727) 847-2288. Thank you.

 


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What is Owner Financing?

 

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Hi.  I’m Chip Waller.  I’m often asked about what is owner financing.  Owner financing is whenever someone wishes to sell their real estate, and they’re going to act as the bank and hold the mortgage or note and provide financing for the purchaser so the purchaser does not have to go to a lending institution to borrow the money.

This is advantageous to the purchaser because they don’t have to have the closing costs that banks charge or go through the underwriting requirements.  As far as the seller is concerned, they get a higher rate of interest than what they would on their investments.  The difference as far as getting cash, of course, is that it’s not liquid and that is a downside to owner financing for the seller.

What goes into the owner financing is is how much of a down payment will you receive before you agree to hold the note in mortgage.  This is usually a percentage.  A rule of thumb is to ask at least 20 percent down as a down payment in cash, and then agree to possibly hold the other 80 percent.  The more down payment you receive, the more secure you are.

In dealing with owner financing you want to really be satisfied that if you take back the real estate that you’re financing, it will to be worth what is owed to you.  With this recent economic crash, as far as the real-estate market is concerned, no one could anticipate that the value of property would go down by as much as 50 or 60 percent.  So the rule of thumb of 20 or 30 percent was not a very good rule if you financed property back in 2005 and 2006.

Another thing that you look at in owner financing is the interest rate.  Usually at this time you’re looking anywhere around six, seven, eight percent. Even though borrowers say, “Well, I can go to the bank and get it for four or five,” if you go to the bank and get it for four or five you’ll have a lot more closing costs and a lot bigger hassle.

Then you also need to address how long you’re going to hold the note and mortgage, and that you can keep the payments small, Let’s say you agree to finance it for three years, then you can spread the payments out as if they were going to pay for 30 years, and at the end of three years they have what they call a balloon payment, and they must come up with all of the money, or if you agree to finance it, say, for 15 years, 10 years or 20 years, you can have a level payment called an amortized payment or amortization, and then you get an amortization schedule that goes along with your financing.

The other thing before agreeing to owner financing is that you need to understand what it’s going to take if the buyer fails to make the payments.  You have to go through the mortgage foreclosure process, which takes time, which is probably six to nine months at a minimum.  The cost is anywhere from $2,500.00 to $5,000.00 and up, depending on whether or not it is commercial property and if it’s contested.

So if you have any questions about owner financing, give me a call at 847-2288 and I’ll be glad to talk to you.  Thank you.

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What is an Agreement for Deed?

 

Video Summary

An agreement for deed is a form of owner financing wherein the seller retains the title to the property and allows the buyer to take possession of the property. The seller provides equitable title, which means that the buyer has all the legal rights to the property except for legal title, which is held by the seller for the purposes of securing payment. However, Florida law treats an agreement for deed the same as a Note in Mortgage. Our law office generally does not use agreements for deed because there is no particular advantage over a Note in Mortgage.

If you have any questions about buying or selling a house, agreements for deed, notes in mortgage, or other related matters, please give us a call at (727) 847-2288.

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