MARCH #4

REAL ESTATE NEWS

FOR ALL OF YOUR REAL ESTATE NEEDS
R

2012

Forgiven Debt and Taxes

Suppose you do a short sale on your home and you sell your home for less than the amount of your mortgage. The bank may call it even and let you go, but the IRS wont necessarily look at it the same way. In general, the IRS says that any debt forgiveness is taxable; that is, the amount of debt that is forgiven is the same amount that is treated as taxable income. Thus, until recently, a struggling home loan borrower in this situation could not only lose their home, but could be stuck with a large tax bill. A 2007 law (the Mortgage Forgiveness Debt Relief Act) created an exception to this. Under this law, a borrower does not have to pay tax on forgiven mortgage debt if that debt is secured by a principal residence and the amount of outstanding debt does not exceed the original mortgage amount plus the cost of any improvements. This exception can apply to a short sale, a foreclosure where some debt is wiped out, bankruptcy with principal reduction or a modification with a principal reduction. The debt must have been forgiven between 2007 and 2012 and the protection is limited to $2 million. Keep in mind that even though you may not have to pay tax, you do have to file additional paperwork with the IRS declaring the forgiveness. Tax relief may not be available for all refinances, second mortgages or lines of credit so check with your tax advisor or lawyer if that applies to you. The act also does not cover forgiven debt on rental or business properties. These exceptions are set to expire at the end of 2012 and have not yet been extended. However, industry groups are currently lobbying to have the law extended.

Location: 94 La Gorce Cr., Miami Beach, FL 33141 Beds: 9 Baths: 9 full and 2 half baths Square Feet: 15,101 Owner: Dwayne Michael Carter, Jr. -- better known as rapper Lil Wayne Asking Price: $12,900,000 History: The rapper purchased the home for approximately $14 million last year. However, he reportedly is trying to sell this home quickly to settle a large tax lien (roughly $5.6 million). Features: To start with, this home has 1,200 feet of water frontage and a boat dock allowing for direct access to the water. You will also find an outdoor pool and hot tub as well as multiple sky terraces to enjoy the beautiful Florida weather. Inside, this three level estate has glass walls providing fantastic views of the water and the Miami skyline. An entertainment room and a two-story master suite (accessible by a glass elevator) are some of the highlights. There is also a 3 bedroom guesthouse and a 3 car garage.

Question and Answer

Seller Question: Im selling my parents house. I think I can get more money if I do some repairs but I want it to be profitable. Whats a good rule of thumb? In general, you want to get at least a 15% - 20% return on your money. So if it costs you $100 dollars to fix something, you should make sure that fix will add about $115-$120 worth of value when you sell the house. Of course, this gets a bit trickier if you do the work yourself in that case you have to consider the cost of your time and labor. Something may be a cheap financial fix, but if it takes you 3 days to do it, it may not be worthwhile. Buyer Question: When does the seller of a home move out? This should typically be covered in the sales contract and is negotiable between the buyer and seller. Normally, the buyer will get control at closing (which means the seller has to be out by then and will usually move out a few days prior). However, it is possible for the seller to be out well before closing. The opposite is true as well, and the seller may want to stay a few days after the closing. If this is the case, you need to negotiate an arrangement (a short term lease, for example). There is also the possibility that there is a tenant in the home. In that case, you would still have to honor the terms of the lease (although you could certainly ask them to move out early). Finally, although rare, it is possible the seller just doesnt leave the home, even though your contract states the property should be vacated. It has happened that the seller just never moved. In that case, its probably time to call your lawyer.

Worlds Safest Cities

The 2011 Mercer Quality of Living survey looked at 221 worldwide cities and determined a personal safety ranking for each one, by measuring internal stability, crime levels, law enforcement effectiveness, and internal relations. Here are the 10 safest cities: 1) Luxembourg, Luxembourg 2) Bern, Switzerland 3) Helsinki, Finland 4) Zurich, Switzerland 5) Vienna, Austria 6) Geneva, Switzerland 7) Stockholm, Sweden 8) Singapore, Singapore 9) Auckland, New Zealand 10) Wellington, New Zealand

You will notice no cities in the United States made this list. In fact, there were none in the top 50. Baghdad was found to be the most dangerous, followed by NDjamena, Chad, then Abidjan, Cote DIvoire and two other African cities.

Riddle of the Week:

Question: You throw away the outside and cook the inside. Then you eat the outside and throw away the inside. What did you eat? Answer: An ear of corn.
The information in this newsletter is not meant as legal, financial, or any other type of recommendation. Please consult a qualified professional to discuss the details of your individual situation.