• Archives
February 2008
• Feb. 27, 2008 - IRS - 2nd Homes - 1031's
We use the industries #1 source on 1031 Exchange for all transactions, Old Republic Exchange Facilitator Company.
Finally -IRS Guidance on Exchanging Vacation Homes Revenue Procedure:
2008-16 Provides Safe Harbor
Until now, the issue of whether a vacation home qualifies for tax deferral treatment under IRC §1031 was the subject of much scrutiny and uncertainty. To the delight of many tax practitioners, on February 15, 2008, the IRS eliminated that uncertainty by issuing Revenue Procedure ("Rev. Proc.") 2008-16, effective March 10, 2008, which provides a safe harbor for exchanges of vacation homes (defined as "dwelling unit" in the Rev. Proc.). Now taxpayers can have a clear understanding of the circumstances under which the IRS will not challenge whether a vacation home will qualify as property "held for investment" under §1031.
Vacation Home as Relinquished Property
For a vacation home to qualify as relinquished property, it must meet the following criteria:
It is owned by the taxpayer for at least 24 months immediately before the exchange ("qualifying use period"); and
Within the qualifying use period, in each of the two 12 month periods, (1) the taxpayer rents the dwelling unit at fair rental to another person for 14 days or more and (2) the taxpayers personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12 month period that the dwelling unit was rented at fair rental value.
The first 12 month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day). The second 12 month period ends on the day before the first 12 month period begins (and begins 12 months prior to that day).
Vacation Home as Replacement Property
For a vacation home to qualify as replacement property, it must meet the following criteria:
It is owned by the taxpayer for at least 24 months immediately following the exchange ("qualifying use period"); and
Within the qualifying use period, in each of the two 12 month periods, (1) the taxpayer rents the dwelling unit to another person at fair rental for 14 days or more and (2) the taxpayers personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12 month period that the dwelling unit was rented at fair rental.
The 12 month period immediately after the exchange begins on the day after the exchange takes place and the second 12 month period begins on the day after the first 12 month period ends.
Personal use is defined broadly. Use by the taxpayer or other person having an interest in the dwelling unit and any family member1 will be considered "personal use" by the taxpayer. Also, any arrangement whereby fair market rent is not paid will be considered "personal use" by the taxpayer. Notwithstanding the foregoing, use by family members will not be considered "personal use" by the taxpayer only if the dwelling unit is rented at fair market rent and the family member uses it as his principal residence.
Fair rental is based upon all of the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the rental agreement are taken into account.
Note special rule for replacement property. If the taxpayer files a return reporting a transaction under §1031 based on the expectation that the dwelling unit will meet the qualifying use standards and subsequently determines that the dwelling unit does not meet the qualifying use standards, the taxpayer, if necessary, should file an amended return.
Exchanges of vacation homes outside the Rev. Proc. 2008-16 safe harbor. An exchange of a vacation home may still qualify under §1031 even though it falls outside the parameters of Rev. Proc. 2008-16. Any such circumstance will be subject to greater scrutiny and therefore should be carefully planned and reviewed by the taxpayers tax advisor.
1 Brothers and sisters (by the whole or half blood), spouses, ancestors, and lineal descendants.
|
Permanent Link
View more entries tagged with: 1031 Exchange, Old Republic, Irs, 2nd Home |
• Feb. 25, 2008 - Questions and Answers on Home Foreclosure and Debt Cancellation
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 lenders 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.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Related Items:
|
Permanent Link
View more entries tagged with: Cancellation Of Debt, Form 1099c, The Mortgage Forgiveness Debt Relief Act Of 2007, Home Foreclosure, Debt Cancellation |
• Feb. 22, 2008 - Mortgage Delinquencies and Foreclosures
Buy Through Us... We'll Sell Your Home For FREE!
Purchasing A New Home? Call 407.451.3145 To See How You Can Receive A Rebate At Closing.
In Focus
Mortgage Delinquencies and Foreclosures: Third Quarter Data Show Increases in Both by George Ratiu, Economist, NAR Research
The numbers tell the story – more households are delinquent in their mortgage payments, and foreclosures are on the rise. According to data from the Mortgage Bankers Association’s (MBA) National Delinquency Survey,* the third quarter of 2007 recorded an increase in both mortgage delinquency and foreclosure rates.
First, let’s discuss mortgage loans outstanding. Nationally, the number of mortgages increased by 2.64 percent from that in the second quarter of last year; on a year-over year basis, the increase was 6.61 percent. Not all areas of the country exhibited the same level of activity. The states with the highest increase in year-over-year mortgage volume were Vermont (20.98%), Delaware (21.40%), South Dakota (25.57%) and North Dakota (27.41%). Meanwhile, two states experienced a drop in mortgages serviced compared with the second quarter—Idaho (-5.92%) and Utah (-1.83%).
Composition of the Mortgage Market
The composition of mortgage loans shifted from the second to the third quarter of 2007, with a one-percent drop in subprime loans being offset by a one-percent increase in prime mortgages. As of the third quarter, prime mortgages accounted for 78 percent of the total loans serviced. Subprime loans made up the second largest group of mortgages – 13 percent – followed by FHA loans (7%) and VA loans (2%). Keep in mind that these percentage breakouts pertain to homeowners who have mortgages. There are approximately one-third of homeowners who do not have a mortgage because they have paid it off.
Delinquency Rates
Mortgages with installments past due – i.e., delinquent – increased from 5.06 percent to 5.81 percent in the third quarter compared with the previous quarter. Year-over-year, the number of delinquent mortgages was up 27.89 percent. The one exception was the state of Louisiana which recorded a 7.11 percent drop in the number of Total Past Due mortgages, mostly fueled by a 42.36 percent decrease in mortgages with 90-day Past Due installments. The figure reflects past Katrina rebuilding activity in the New Orleans area.
Mirroring the upward swing in the number of delinquencies, foreclosure starts were also higher in the third quarter of 2007 than in the previous quarter or the third quarter of 2006. The number of foreclosure starts was up 35.70 percent compared with the level in the second quarter, and 76.93 percent higher year-over-year. In terms of numbers, there were 354,254 foreclosure starts in the third quarter of 2007 versus 261,063 in the prior quarter, and 200,223 in the third quarter of 2006. Nationally, there were nine states that posted more than a 100 percent increase in foreclosure starts.
It wasn’t all bad news. Indeed, there were some bright spots in this landscape. Three states experienced decreases in year-over-year foreclosure starts—Vermont (-26.28%), South Dakota (-16.99%), and Utah (-15.75%).
Foreclosure inventories also increased in the third quarter. They rose by 23.90 percent from the level in the second quarter. On a yearly basis, inventories were up 71.59 percent compared with the third quarter in 2006. The increase in foreclosure inventories was most severe in four states that experienced high home price appreciation coupled with speculative real estate investing—Arizona, California, Nevada and Florida.
Subprime Loans
The subprime fallout continues to have an impact. The number of subprime loans serviced nationally during the third quarter was down 3.45 percent from that in the second quarter. Compared with the previous quarter, every state recorded a decrease in the number of subprime mortgages, with Iowa, Kansas and Colorado posting the largest changes: -5.05%, -4.87%, and -4.27%, respectively.
In contrast with the decrease in the number of subprime loans serviced, the delinquency rate for subprime mortgages moved from 14.54 percent in the second quarter of 2007 to 16.68 percent in the third. Subprime mortgages also posted an upward swing in foreclosure starts—25.31 percent higher than in the second quarter, and 74.53 higher than in the third quarter of 2006.
Foreclosure inventories were 85.15 percent higher for subprime mortgages year-over-year. This increase was driven mostly by 13 states that posted increases of 100 percent or more—California, Nevada, Arizona and Florida among them. On the flip side, three states recorded drops in foreclosure starts for subprime mortgages on a year-over-year basis – Utah (-32.26%), Vermont (-51.39%), and South Dakota (-58.81%). Moreover, one other state – Montana – showed a decline in foreclosure inventories of 9.88 percent.
What it Means for the Housing Market
The increase in mortgage delinquencies and foreclosures are taking a toll on housing markets, particularly in states where rapid price appreciation combined with speculative investing led to the proliferation of subprime and adjustable rate mortgages. Looking forward to the months ahead, the states with high delinquency rates will continue to experience downward pressures on home prices. The passage of the national economic stimulus package is likely to mitigate some of the effects of rising delinquencies and foreclosures. Based on an economic impact study conducted by NAR, it is estimated that increasing the GSEs’ conforming loan limits would result in as many as 500,000 refinanced loans and a potential 210,000 reduction in foreclosures.
*MBA's National Delinquency Survey collects data from over 80 percent of about 50 million outstanding loans in the housing market. For more information, visit the Mortgage Banker's Association.
Reprint from online article at National Association of Realtors - Real Estate Insights |
Permanent Link
View more entries tagged with: Foreclosure, Preforeclosure, Distress Sale |
• Feb. 20, 2008 - Loan Limits / The Impact
How New FHA, GSE Loan Limits Impact You:
Last week, President Bush signed into law a $152 billion economic stimulus bill that includes temporary increases in loan limits for the government sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — and the Federal Housing Administration until Dec. 31. But what does this mean for you?
"The importance of immediately implementing the new limits cannot be overstated," said NAR President Richard Gaylord last week in a public statement. "Mortgage markets throughout the country need liquidity. Our research indicates that the increased FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.”
The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices). The GSE limit will jump to $729,750 for loans; currently Fannie Mae and Freddie Mac loans are capped at $417,000.
Eligible loans from FHA include mortgages that were issued for credit approval on or before Dec. 31, 2008. GSE loans that are eligible include loans that originated after July 1, 2007 to Dec. 31, 2008.
The U.S. Department of Housing and Urban Development is required to publish the new mortgage limits by March 14; the limits will be effective for FHA immediately upon publication. |
Permanent Link
View more entries tagged with: Foreclosure, Fannie Mae, Freddie Mac, Gses, Federal Housing Administration, Fha, Mortgage, Mortgage Limits, Mortgage Rates, Refinace |
• Feb. 7, 2008 - Oakland Park
Buy Through Us... We'll Sell Your Home For FREE!
Purchasing A New Home? Call 407.451.3145 To See How You Can Receive A Rebate At Closing.
Oakland Park
In keeping with our commitment to blending in and feeling like a natural part of the area, the architecture of Oakland Park draws great inspiration from historic homes in Oakland and Winter Garden. This vision mandates original designs and a 360-degree approach to detail, not merely facing the home with historically appropriate trappings. Homes are oriented toward the street with the interiors given an outward-facing perspective. Homes are serviced by a rear alley or garage, contributing to the aesthetic and pedestrian-friendly nature of Oakland Park. Generous front porches allow ample opportunity for interaction with neighbors and a feeling of emotional investment in - and connection to - this small-town community. As towns evolved and grew in the 1800s and early 1900s, different types of residences would be added to existing streets as the need arose. Following that precedent, we've chosen to combine attached and detached residences along the same thoroughfare to capture the welcoming aura found on residential streets of that era. Exceptional attention to detail and authenticity of design are an integral part of the vision to recreate in Oakland Park now what the original settlement might have been like.
The community of Oakland Park encompasses approximately 258 acres of land stretching from the shores of Lake Apopka south to Oakland Avenue. Much of what makes Oakland Park feel like a naturally occurring community is a steadfast commitment to preserving and enhancing the beautiful Old Florida feel of the land. As would have been the case over a century ago, earthmoving has been kept to a minimum. The community follows the natural grade of the land, which slopes up from the shoreline of Lake Apopka, providing lake views for many of the homes near the lake. Magnificent live oaks have been preserved throughout the community.
Architecture
New Urbanism:
The Oakland Park community incorporates the principals of New Urbanism, or traditional neighborhood development (TND). This development pattern is in contrast to conventional suburban sprawl so prevalent over the past fifty years. Through the diversity of its architecture, the inherent walkability of the community, the abundance of open civic spaces and public trails, and the integration of an accessible neighborhood center, Oakland Park promises a small-town feel.
40+ Mile Long Bike Trail - I have rolled many a mile over the last 12 years on this trail, this is beautiful country. See you on the trail.
For more information on the Oakland Park Community contact me at 407.330.0060 or by email at davelowe@two4one.com.
|
Comments (0) :: Post A Comment! :: Permanent Link
View more entries tagged with: Oakland, Oakland Park, New Urbanism, Dole, Retirement, Retirement In Florida, Two4one Of Orlando, Central Florida, New Homes Orlando |
|
|
|
|
RSS Blog Feed