Posted on September 19, 2012, at 23:16:46
Mortgage Forgiveness Debt Relief Extended - Updated 04/13/10
On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.
New law - Taxable years 2009 through 2012
California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges that occurred in tax years 2007 through December 31, 2012. The amount of qualifying indebtedness is less than the federal amount and California imposes a state-only limitation on the total amount of relief excluded from gross income. The following summarizes the differences between the federal and California provisions. Federal provision applies to discharges occurring in 2007 through 2012, and:
• Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
• Does not limit the debt relief amount; it only limits the indebtedness amount used to calculate the debt relief amount.
• See the federal law Mortgage Forgiveness Debt Relief Act and Debt Cancellation for more information.
California provision applies to discharges that occurred in 2007 through 2012, and:
Taxable years 2009 through 2012
• Limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
• Limits debt relief to $500,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $250,000 for taxpayers who file as married/RDP filing separately.
Taxable years 2007 and 2008
• Limited the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/(RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
• Limited debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately.
How to File
Form 540 - Claiming mortgage forgiveness debt relief on an original tax return
You can file for debt relief on your original Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.
If the amount of debt relief for federal purposes is the same as or less than the California limit, then no adjustment is necessary on Schedule CA (540/540NR).
If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column C.
You must include a copy of your federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with your original California tax return. There is no similar California form.
Form 540X - Claiming mortgage forgiveness debt relief for a previously-filed tax return
If you already filed your tax return, file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief.
If the amount of debt relief for federal purposes is the same as or less than the California limit(s), an adjustment to income is no longer necessary on Schedule CA (540/540NR). On Form 540X, simply enter on line 2e, column B, the amount originally entered on Schedule CA (540/540NR) line 21f, column C.
If the amount of debt relief for federal purposes is more than the California limit(s), complete a new Schedule CA (540/540NR) and revise the amount originally reported on line 21f, column C, attributed to federal mortgage forgiveness debt relief, to the amount in excess of the California limit. Complete Form 540X following the instructions for that form and enter on line 2e, column B the difference from the original Schedule CA (540/540NR), line 21f, column C, less the amount from the revised Schedule CA (540 or 540NR), line 21f, column C.
When filing Form 540X, write "Mortgage Debt Relief" in red across the top of your amended tax return.
Cancellation of Debt
Generally, if you have property that is used as security for a debt and that property is taken by the lender (foreclosed) in full or partial satisfaction of the debt, you are treated as having sold the property.1 This may generate either a gain or a loss, and in some cases cancellation of debt (COD) income. A mortgage restructuring (such as reduction in principal), that reduced your debt may also generate COD income.
In the wake of the 2007 American housing market collapse and subsequent mortgage crisis, the U.S. Congress enacted the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110 142) and Emergency Economic Stabilization Act of 2008 (P.L. 110-343).
These Acts include provisions under federal law that, subject to certain conditions, that allows taxpayers to exclude from their federal taxable income the discharge of debt on their principal residence (COD income) that they would otherwise have been required to report (2007 through 2012).2 The special federal rules relating to qualified principal residence apply to debt reduced through mortgage restructuring, as well as to mortgage debt forgiven in connection with a foreclosure.
Property other than principal residence
The federal Mortgage Forgiveness Debt Relief Act only provides for the exclusion of COD income relating to qualified principal residence. If you have COD income as the result of a foreclosure on other property, such as a second (vacation) home, rental, or other business property, you may still be able to exclude COD income under other provisions if:
1. You were bankrupt when the discharge occurred (Title 11 discharge).
2. You were insolvent (limited to level of insolvency).
3. Qualified farm indebtedness was canceled.
4. Debt was Qualified Real Property Business Indebtedness (QRPBI)3 and you make a federal election.
If more than one of these exceptions applies, they are applied in the above order.4
For more information, see IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. The IRS Publication 4681 has a worksheet that can be used to help calculate the extent to which a taxpayer is insolvent immediately before the cancellation.
Information resources
• IRS.gov search for home foreclosure and debt cancellation.
• IRS publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments
• Federal law – Mortgage Forgiveness Debt Relief Act and Debt Cancellation
• SB 1055 – Legislative Change 08-7
• Press Release April 2010 – California Enacts Mortgage Forgiveness Debt Relief
• Tax News February 2010 – California Code of Civil Procedures and Foreclosure
• Tax News July 2009 – Foreclosure and Short Sales
• Tax News November 2009 – Documents, Second Mortgages, Tax Reporting – How to Handle a Foreclosed Home for Tax Purposes
________________________________________
1Refer to the February 2010 Tax News article California Code of Civil Procedures and Foreclosure for more information regarding how California Civil Procedure Code (CCP) Sections interact with IRC Section 108.
2Federal law initially applied to discharges occurring from 2007 through 2009 (the Mortgage Forgiveness Debt Relief Act of 2007, Public Law 110-142, December 20, 2007). Federal mortgage forgiveness debt relief was subsequently extended to apply to discharges occurring from 2009 through 2012 (the Emergency Economic Stabilization Act of 2008, Public Law 111-5, October 3, 2008).
3The taxpayer cannot be a C corporation to use this exclusion.
4IRC section 108(a)(2).



Menendez, Boxer Urge Republicans to Join Them to Help Responsible Homeowners Refinance

WASHINGTON, DC - Citing new momentum and support among a broad array of stakeholders, U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) today reintroduced the Responsible Homeowner Refinancing Act and called on Republicans to join them in passing the measure which would help millions of responsible homeowners refinance at lower mortgage rates.
“I’ve received thousands of messages from hardworking homeowners back home, including a cancer survivor named Linda who said trying to refinance her mortgage is harder than fighting cancer,” said Senator Menendez. “Passing this bill will get rid of the red tape that leaves millions of borrowers like Linda trapped in higher interest loans, put money back into the pockets of middle class families and strengthen our economy. I’m asking Republicans to join us in putting families first.”

Senator Boxer said, “This bill is a win-win-win: homeowners will have more money in their pockets, Fannie and Freddie will see fewer foreclosures, and the housing market and economy will be strengthened. That’s why the Menendez-Boxer bill has such broad support from industry and consumer groups.”

The legislation is supported by a broad array of stakeholders representing borrowers, lenders, sellers, finance and industry, and other experts including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and the Center for Responsible Lending.

Summary of The Responsible Homeowner Refinancing Act of 2012

Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA)

There are nearly 13.5 million responsible borrowers in loans guaranteed by Fannie Mae and Freddie Mac who could benefit from refinancing at today’s low interest rates. Although recent changes to the Home Affordable Refinance Program (HARP) were a step in the right direction, they left in place barriers that will keep millions of borrowers trapped in higher interest loans. The Responsible Homeowner Refinancing Act will build on these changes and further expand opportunities to access historically low interest rates for borrowers who make their mortgage payments on time.

To remove the barriers preventing borrowers who are making their payments on time from refinancing their loans at the lowest rates possible, the bill would:
• Remove barriers to competition

Under HARP, lenders who want to compete with the borrower’s current lender for that borrowers’ business continue to face stricter underwriting criteria and greater risk that the GSEs will force them to buy that loan back should the borrower default. These different standards have posed a barrier to competition, resulting in higher prices and less favorable terms for borrowers. A recent study by Amherst Securities Group found that HARP borrowers are paying more than half a percentage point more than borrowers with other types of loans.

This bill would direct the GSEs to require the same streamlined underwriting and associated representations and warranties for new servicers as they do for current servicers, leveling the playing field and unlocking competition between banks for borrowers’ business.

• Guarantee equal access to streamlined refinancing for all GSE borrower

When FHFA recently expanded HARP eligibility to underwater borrowers, they continued to require lenders to distinguish between borrowers with less than 20 percent equity and greater than 20 percent equity in ways that left higher equity borrowers with greater costs and administrative burden. This meant that borrowers who have been paying down their mortgages over many years, building equity in their homes, were locked out of the program.

This bill would ensure that all GSE borrowers who are making their payments have the same access to simple, low-cost refinances, regardless of the level of equity they have in their home. This is not only a simple matter of fairness- it also makes good business sense. Providing a single set of rules for all lenders and all GSE borrowers will simplify the process for all involved, allowing all lenders to offer a single, streamlined program to all GSE borrowers who have been paying their loans on time.

• Eliminate up-front fees completely on refinances

Although the GSEs lowered up-front fees for HARP loans with less than 20 percent equity, they left them in place for those with more equity. This created the economically indefensible situation in which borrowers with significant equity in their homes could face steeper costs in refinancing than borrowers with no equity whatsoever. So borrowers who pose less risk to the GSEs are in fact paying a higher risk premium. These additional fees can be as high as two percent of the loan amount, or an extra $4,000 on a $200,000 loan. For borrowers struggling to keep up with their payments, this is an additional cost they simply cannot afford.

This bill prohibits the GSEs from charging up-front fees to refinance any loan they already guarantee, which is also in the best financial interests of the GSE’s and taxpayers.

• Eliminate appraisal costs for all borrowers

GSEs use Automated Valuation Models to determine home values without the need for slow and costly manual appraisals. However, borrowers who happen to live in communities without a significant number of recent home sales often cannot use these models and are forced instead to pay hundreds of dollars for a manual appraisal for a HARP refinance.

This bill requires the GSEs to develop additional streamlined alternatives to manual appraisals, eliminating a significant barrier and reducing cost and time for borrowers and lenders alike, especially in rural areas. Again, this just makes good economic sense. Taxpayers are already on the hook for these loans and will benefit from providing the borrowers with an easier path to refinancing.

• Further streamline refinancing application process

HARP already restricts participation to borrowers who are current on their loans and have demonstrated a commitment to making their payments on time – even in the face of loss of income or employment. There is thus no reason to require proof of employment or income for these loans, particularly given that the GSEs already retain the risk, and that risk will only go down with lower interest rates.

So this bill eliminates employment and income verification requirements, further streamlining the refinancing process and removing unnecessary costs and hassle for lenders and borrowers alike.

• Save taxpayers money

According to the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers










House Passes Biggert FHA Solvency Bill
09/11/12
Washington, DC – The House overwhelmingly approved legislation today authored by U.S. Representative Judy Biggert (R-IL-13th) to prevent the Federal Housing Administration (FHA) from edging closer to insolvency. Biggert, who chairs the Subcommittee on Insurance, Housing, and Community Opportunity, introduced H.R. 4264, the FHA Emergency Fiscal Solvency Act of 2012, this March. H.R. 4264 passed the House today by a vote of 402 to 7.

“FHA’s declining financial position could cost taxpayers millions, and it threatens the stability of our housing market,” said Biggert. “We cannot afford another Fannie- and Freddie-style bailout, and mortgage holders don’t need any more market uncertainty driving down their home values. This legislation will give HUD Secretary Donovan emergency tools to protect the solvency of the FHA. It allows the FHA to enforce stronger loan standards and crack down on bad lenders.

The FHA insures more than $1 trillion worth of mortgages on more than 7 million loans. As of November 2011, the FHA’s capital reserve fund was estimated at 0.24 percent – far short of the 2 percent required by statute. Due to deteriorating financial conditions, the Administration’s fiscal year 2013 budget projects that the FHA may require $688 million in taxpayer assistance to shore up its financial position. In order to mitigate financial risk within the FHA, H.R. 4264 would:

• Give the Department of Housing and Urban Development (HUD) authority to charge up to a maximum premium of 2.05 percent annually on mortgage insurance;
• Establish a minimum annual premium for mortgage insurance of 0.55 percent;
• Bar unscrupulous lenders from participating in the program;
• Require repayment of losses to FHA by lenders who committed fraud;
• Improve the FHA’s internal financial controls, transparency, and disclosure requirements; and
• Require the GAO to conduct an independent safety and soundness review of the FHA.
“The FHA – along with Fannie and Freddie – continues to dominate the mortgage market, and that puts taxpayers at risk every time something goes wrong,” said Biggert. “This legislation implements several common-sense measures, many of which were requested by the FHA, to halt the insurance fund’s decline. I appreciate the bipartisan support we received on the House floor, and I look forward to working with my colleagues in the Senate to send this bill to the President.”


 

 


FEATURE PROPERTY

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Type of Housing: Single Family

 Location: 442 Amber Ave, Clovis, CA 93611

 Bedrooms: 4

 Bathrooms: 3

 Kitchen: 1

 Price: $ 339000

 Property Description:
Meticiously maintained beautiful home with many recent upgrades. Kitchen remodel June 2012 granite counters, designer backsplash, new Dacor 5-burner range, Kitchen Aid dishwasher, new extra large/deep Kohler kitchen sink. Garbage disposal controls conveniently located on top of counter along with built in dishsoap and handsoap dispensers. 4-inch plantation white shutters throughout. Beautiful Pecan wood flooring new in 2010 in entry,dining, office, wine room, staircase. New designer ceiling fans in great room, nook. Fireplace hearth updated to match new finish of kitchen cabinets. Extra large master bedroom with sitting area. Cedar lined master closet. Huge loft man cave prewired for surround sound roomy enough for pool table and sectional. New paint in most of the home. Purchase price includes pool table and stainless side-by-side refrigerator.

 

 

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