No More Phantom Income from Real Estate Short Sales
Thursday may mark a dramatic increase in real estate short sales due to H.R. 3848 being signed as law by President Bush.
For the next three years mortgage debt forgiven by lenders when troubled borrowers negotiate real estate short sales or mortgage workouts on their primary residence that involve forgiveness of part of their debt will no longer be counted as phantom income by the IRS.
This will must likely lead to a tremendous growth in real estate short sales but what will it do to prices?
Already in certain parts of the country even with the phantom income, some agents are reporting that real estate short sales account for as much as 30% of all current activity in parts of California.
With this new law, there is no down-side to doing a short sale so many more owners will seek this as an option.
Maybe now, mortgage lenders will be more prone to accepting real estate short sales as it helps keep foreclosures off the books which keeps wall street happy.
Question is, will this help stabalize the free falling market or simply speed up competition of "must sale" homes and push prices down faster?
For the next three years mortgage debt forgiven by lenders when troubled borrowers negotiate real estate short sales or mortgage workouts on their primary residence that involve forgiveness of part of their debt will no longer be counted as phantom income by the IRS.
This will must likely lead to a tremendous growth in real estate short sales but what will it do to prices?
Already in certain parts of the country even with the phantom income, some agents are reporting that real estate short sales account for as much as 30% of all current activity in parts of California.
With this new law, there is no down-side to doing a short sale so many more owners will seek this as an option.
Maybe now, mortgage lenders will be more prone to accepting real estate short sales as it helps keep foreclosures off the books which keeps wall street happy.
Question is, will this help stabalize the free falling market or simply speed up competition of "must sale" homes and push prices down faster?
Labels: hr 3648, mortgage short sales, real estate short sale, short sale
posted by Jessie B at 12:47 PM
4 Comments:
Great post. I have to agree with you in that the more "must sale" homes will push prices down faster as real estate short sales increase. Which will open a lot of opportunities for investors
Yes, but if the market is already declining in price. Does it not make more sense to force prices down with massive short sales. In order to skip the slow bleed in which would probably end up finding a lower bottom?
This way with some crafty negotiations with the FED, the mortgage industry, and the people. Investors would see that as the time to step in for great deals.
In which will eventually rebound the market a heck of a lot quicker than just letting it all play out.
Just a theory anyway.
Maybe we have artificially find the bottom in a controlled well thought out way before it can get better?
K
I have read a lot of various sources about how people are so apposed to H.R. 3648 bill. Is it OK for the government to come in and bail out large corporations that were the creator of all of these loans but when it comes to the individual that was being told they were being provided a good loan then they are being left high and dry?
This bill will have less impact financially on this country then 2 days in the Iraq war. The projected cost of this bill is nothing compared to the impact of good it can do. Read the bill and you will see that the projected 10 year cost is next to nothing.
The fed should not have bailed out Bear Stearns. And what you said there is exactly why. The selfishness and greed of the people with the "Me too" entitlement mentality that had "Good loans" but didn't know how they worked. Or even cared to ask "What are my payments going to be?" Or had any intention of honoring them anyway.
It's not governments job to fix everyones boo-boo. And it's certainly not govn'ts job to shoulder the risk when it turns out you made a bad investment.
I should not have to pay for bears stearns mistakes. And I should not have to pay for yours. Only my own.
Which is what H.R. 3648 was intended to do. Allow people to take care of their own mistakes, and not require any one else foot the bill. (At least how I understand it)
If you sell real property, and make a capital gain. You have to pay taxes on said gain.
It's a gain, you have the ability to pay taxes if you have a gain.
But in short sale, the whole reason you have to do this is because you are in financial trouble. You are making no financial gain. Money is not going into your pocket. How can you really expect to be able to pay taxes on something that you made absolutly no gain on? On a function that you can only do if you have no money in the first place. That's like taxing the poor because their poor.
It makes no sense.
Debt forgivness should not be considered income. And should not be taxible.
H.R. 3648 did not give anyone anything. Your tax money isn't bailing people out. Your not hurt in any way. It's simply government not being so greedy as to tax people when they made no money.
It should be extended to all short sales (Unless of course a capital gain is made. Then capital gain tax should apply, not income tax.)
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