Lender411.com Articles Mortgage Trends

Link to this page Print RSS  

California Conundrum are we headed for trouble ???
Even as the federal government prods the mortgage industry to avoid foreclosures through loan modifications and short sales, California may soon let such help become costlier for borrowers.
Debt forgiven on a home loan is considered income and normally subject to taxation. In 2007, however, Congress forbade the Internal Revenue Service to tax forgiven mortgage debt through 2012. Also in 2007, California adopted a ban on state taxation of mortgage-balance forgiveness through the following year. But the ban was never extended.
In February the state Senate passed a bill that would put forgiven mortgage debt off-limits to state taxation from 2009 to 2012, aligning California with the federal law. But the bill has not passed the Assembly. And Gov. Arnold Schwarzenegger — who is trying to close a $20 billion budget deficit — has said he would veto the legislation because of an unrelated provision that would increase penalties for companies that abuse tax credits.
If the bill were enacted, homeowners could seek refunds for 2009 taxes already paid. But in the meantime state income tax returns are due April 1 — or a penalty will be assessed. The State Franchise Tax Board has indicated a willingness to work with taxpayers to create a payment schedule. However, the state charges interest at a rate of 4%.
"The last thing [homeowners] should have to think about is paying taxes on debt they couldn't repay," state Sen. Lois Wolk said in February when she introduced the legislation. Her district includes Stockton and Tracy, two cities in San Joaquin County that have been hit hard by foreclosures.
Wolk's bill would exclude from taxation up to $500,000 of mortgage debt on primary residences that was forgiven as the result of a short sale or loan modification.
Many defaulted borrowers are unaware that they will be hit with sizable tax bills, according to the California Association of Realtors and tax experts.
"A lot of people just don't have a choice, and though a short sale may be easier on their credit, they still face tax consequences," said Michael Gray, a San Jose accountant who has written on the subject on his blog, taxtrimmers.com.
California "can't afford to" extend the tax credit because of its budget deficit, Gray said. "While legislators hate to be in the position of creating an additional hardship for California taxpayers, they can't make their own budget work because California is so far underwater."
Meanwhile, in Washington, a year after it introduced the Home Affordable Modification Program, the Treasury Department is about to begin offering incentives to lenders to pursue short sales (in which the borrower sells the home for less than is owed on the mortgage and is released from further obligation). The Home Affordable Foreclosure Alternatives program is to start April 5.For more information in regards to this article or if you are interested in refinancing or purchasing a home in your community call me at (310) 984-0496 or visit my website now and fill out a loan application www.fhasubmissions.com 

Link to this page Print RSS