boise idaho real estate – Mortgage Forgiveness Debt Relief Act & Impacts to You
•February 8, 2008 • Leave a CommentThe Mortgage Forgiveness Debt Relief Act of 2007
•February 8, 2008 • Leave a CommentMany of our real estate clients in Boise, Idaho have expressed concern about the status – and the impact – of the Mortgage Forgiveness Debt Relief Act of 2007. We have researched the IRS web library for the latest updated news.
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 – Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 – Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059
If you or someone you know is looking for assistance with relocation, buying or selling in Boise, Idaho, or if you have a probing real estate question, please call, email or visit my website!
Enjoy the Peaceful Beauty of Winter in Idaho!
Leslie Wright
208|866-8388
Get Smart in 2008! Top 20 Qualities of Smart People
•January 1, 2008 • 1 CommentWelcome to 2008!!
As we start fresh with the new year, many of us think in terms of setting ‘resolutions’. I never liked the term ‘resolutions’, as it implies, to me, something that I need to fix or change. I would rather think in terms of ‘goals’ – setting & then achieving them, focusing on the positive & the future. In light of this thought I came across this article (from Michelle L. Casto, M.Ed.) that stood out & made me reflect on how I can implement these life purpose strategies – to make 2008 my best year yet!
Top 20 Qualities of Smart People
In today’s competitive world, it pays to be smart. No matter how smart you are, I am sure there is something you could get smarter about. Below are some qualities of smart people. As you read the list, ask yourself: Am I as smart as I could be in this area? How could I get smarter?
1. Make Decisions Intuitively
Smart people listen to and follow their intuition. They know how intuitions and insights come to them and are tuned-in internally to make wise decisions.
2. Are Self-Aware
Smart people are aware of who they are — strengths, weaknesses, personality, values, etc. As Confucious once said, “He who knows others is wise, he who knows himself is enlightened, they know that the most important (and interesting) thing to know about is Self”.
3. Use Active Reflection
Smart people reflect on and learn from past experiences, finding out what works and what doesn’t, and then adjust their course of action as needed. They think about things before jumping in, and also take the time after-the-fact to actively reflect to fully understand what happened or didn’t happen.
4. Think Out-of-Box
Smart people can easily entertain new ideas, thoughts, and ways of doing things. They crave progressive and forward thinking information, concepts, and people. They often come up with new and radical ideas on a regular basis.
5. Have An Open-Mind
Smart people are open to different perspectives and see potential where most people don’t. They would agree with what the quote, ‘A mind is like a parachute, it only functions when it is open’. They are comfortable with paradoxes and can relate to many sides of an issue or opinion.
6. Are Responsive
Smart people recognize and respond quickly to opportunities and people. They act and react fast, and take care of what needs to be taken care-of, well ahead of schedule.
7. Are Resourceful
Smart people don’t have to know it all, but they do know where to go to get whatever information, resources, training, education that they need. They are well-networked and have people to call on for resource referrals.
8. Question Authority
Smart people think for themselves. They do not blindly believe things so-called experts say, in fact, they ask deep questions to discover their own truth.
9. Upgrade Their Brain
Smart people stay smart because they are committed to being a lifelong learner. They continuously learn new things, and stay current with their skills, attitudes, and beliefs.
10. Have a Sense of Humor
Smart people do not take themselves or life too seriously. They recognize the importance of finding the fun in the irony and the comedy of everyday life.
11. Take Risks
Smart people are willing to try out new things, knowing that if it doesn’t work out as intended, failure is often cleverly disguised as a learning opportunity. They swing out there often, and it usually pays off.
12. Trust Themselves
Smart people believe and trust themselves first and foremost. They don’t have to check with others to make decisions, they instinctively know what is right for them and they go for it!
13. Write and List Things on Paper
Smart people have a well-developed life strategy that includes a written life vision/mission, purpose, and goals statement. They also write lists—one for have tos and one for want tos.
14. Are Productive
Smart people get things done, through whatever organizational/time management system that works for them. They make the most of each day and take action on important life tasks each and everyday.
15. Use Discernment
Smart people are able to discern (see clearly) others reasons and motives, so they selectively choose who and what to align themselves with. They surround themselves with only the highest quality people, programs, and places.
16. Read, Read, Read
Smart people tap into the collective brain power of others by reading books, magazines, articles—anything that is helpful for their own development. They are also able to filter out the information that fits for them and let the rest go.
17. Value Learning
Smart people value the process of learning for learning’s sake. They do not just learn for a specific end—to get a certificate, degree, title, etc. They learn because it is intrinsically rewarding for them.
18. Teach Others
Smart people are the teachers of the world, who share their knowledge with other people. They put themselves out there so the rest of us can benefit, and in exchange, their own learning grows and develops because they are actively talking about, researching, and understanding their subject.
19. Reinvent Themselves
Smart people do not like to stay the same, they love to grow and develop. They often play with their image, brand, company name, and expand or change it entirely. To stay ahead of the game, they often reinvent themselves time and time again.
20. Are Students of Life
Smart people not only know about specific subjects and topics, but also about what it means to be a human being at this time in our evolution. They are insatiably curious and want to know more about becoming bigger and brighter, as a result they naturally evolve.
As Lao Tzu said, “To gain knowledge, add things everyday. To gain wisdom, remove things everyday”. This is so true, our brain is like a computer and in order for it to function at a higher level, we must always be adding, while simultaneously taking away information that no longer serves us. Think about it, what do you want to remove from your database? And, what new software program will you replace it with?
Michelle L. Casto, M.Ed., is a Whole Life Coach, Speaker, and Author of the Get Smart! LearningBook Series, which includes books and workbooks on romantic relationships, career development, life purpose/life strategy, and stress management.
If you or someone you know is looking for assistance with relocation, buying or selling in Boise, Idaho, or if you have a probing real estate question, please call, email or visit my website!
A very Happy New Year!
Leslie Wright
208|866-8388
Boise Real Estate – Idaho ranks 4th in Population Growth!
•December 30, 2007 • Leave a CommentIdaho is amongst the six Rocky Mountain states to make the list of the nation’s top 10 fastest growing states in the year ending July 2007.
According to an Idaho Business Review Report (December 28, 2007), “Idaho is the 4th fastest-growing state in the nation, for the 3rd year in a row, as reported by the U.S Census Bureau”. This is wonderful year-end news for the state of Idaho & is a fundamental indicator supporting the overall strength & stability of the Boise Idaho real estate climate as we transition into 2008!
“Idaho added more than 35,000 new residents – a 2.4% increase between July 1, 2006, and July 1, 2007, for a total population of 1,499,402. the state Department of Labor said in a release. Nevada experienced the nation’s fastest growth rate, 2.9%. Arizona and Utah ranked 2nd & 3rd, respectively, continuing a growth pattern in the interior West”.
This data speaks directly to a strong in-migration trend to Idaho, currently ranked 14th from mid-2006 to mid-2007. As long as housing sustains affordability, unemployment remains low (under 4%), & new employment opportunities continue to be created, the in-migration will continue and grow. And no wonder, Idaho is a naturally beautiful area, nationally recognized as one of the most desired ‘ideal rurban’ places to live in the West! If you have never visited, please come see for yourself in 2008!
If you or someone you know is looking for assistance with relocation, buying or selling in Boise, Idaho, or if you have a probing real estate question, please call, email or visit my website!
A very Happy New Year!
Leslie Wright
208|866-8388
