Roy Wysack’s Blog

I have many clients that have asked me about the Mortgage Forgiveness Debt Relief Act.  Below are some of the most asked questions and answers.  For more information please see http://www.irs.gov/individuals/article/0,,id=179414,00.html.   

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
There is no dollar limit if the principal balance of the loan was less than $2 million ($1 million if married filing separately for the tax year) at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Attorney General Mike Cox issued an important opinion this week clarifying the proper application of an obscure exemption contained in the Michigan Transfer Tax Act. The opinion, arising out of a request from Representative Martin Griffin (D-Jackson), should afford certain home sellers immediate financial relief as Michigan’s real estate market continues its road to recovery.

Exemption “t”, as designated in the Michigan Transfer Tax Act, sets forth that a seller may seek an exemption from paying the state transfer tax if the following criteria are met:

1. The property must have been occupied as a principle residence, classified as homestead property;
2. The property’s State Equalized Value (“SEV”) for the calendar year in which the transfer is made must be less than or equal to the property’s SEV for the calendar year in which the transferor acquired the property; and
3. The property cannot be transferred for consideration exceeding its true cash value for the year of the transfer.

With property values and corresponding SEV declining due to the struggling economy, home owners and real estate agents first took notice of the exemption’s possible applicability under the state transfer tax. However, absent an official interpretation, there was little awareness of its proper application.

The opinion from the Attorney General uses examples to show how the application would apply. One example illustrating application provides:

If the SEV of the principle residence when acquired in 2006 is $74,000.00 and the SEV when transferred in 2008 is $72,000.00 then criteria one and two above are satisfied. You can establish the true cash value by doubling the SEV at the time of transfer. In this case the true cash value is $144,000. If the sale price in 2008 is $140,000.00 then the sale does not exceed its true cash value. All three criteria are satisfied and the exemption would apply.

The Attorney General’s opinion provides immediate relief to home sellers already faced with the reality of declining value on their single greatest asset. The opinion also provides a uniform reading of the exemption that is necessary to provide consistent application among the various Registers of Deeds across the state as they are already receiving filings for the exemption.

Sellers should be cautioned that a request for the exemption that fails to meet all three criteria could bring a penalty equal to 20% of the tax assessed in addition to the tax due. Additionally, no similar exemption exists in the County Real Estate Transfer Tax Act.

Further questions should be directed to Brian Westrin, MAR Manager of Legal Affairs. He can be reached at 517.372.8890.

A buyer’s market is very good for buyers and bad for the seller because there is more supply of homes for sale than there are buyers for them.  Obviously this drives the price down and makes it hard for a seller to compete with other homes on the market.  The home that is priced below the market for comparable homes will sell first.  Besides selling for less, sellers may even have to come up with other buyer incentives or pay a portion of the closing costs (called ‘financial concessions).A buyer’s market is very good for first time home buyers and for sellers that are upgrading to a more expensive home.  The idea is that even though a seller is selling for a certain percentage less than they would in a seller’s market, they are also buying their more expensive home for at least the same percentage ‘discount’ then the one they sold.  The difference in ‘money lost’ compared to ‘money gained’ by receiving the discount on the more expensive home can net the seller/buyer a positive gain in such a transaction.  In this case, it’s the best time to buy!

House Bill 4215, now Public Act 96 of 2008 sponsored by Representative Ed Gaffney (R-Grosse Pointe Farms) enacts that the seller can retain an additional exemption for up to three years on property previously exempt as the owner’s principal residence if the following circumstances are met:

• the property is not occupied,

• the property is for sale

• the property is not leased or available for lease

• the property is not used for any business or commercial purpose

Dear readers,  Please feel free to post any comments or questions about the real estate market in the southeast Michigan.  If you have questions about bank owned properties, selling a home short, buying a home, or qualifying for a mortgage here is a great place to start.  And thanks in advance for joining my blog.  Roy Wysack.

Welcome to Roy Wysack’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Plymouth Michigan, and surrounding cities of Livonia, Northville, and Canton Michigan.

I saw a billboard the other day that said “Mich-Again”… and it made me think why not?  Michigan can turn around and get going again.  Legislation like this can help in my humble opinion… 

Yesterday, the Michigan Senate took action in passing legislation to stimulate the housing industry in Michigan. The Senate Economic Stimulus Plan gives a boost to the housing industry by providing property tax relief, while putting more money back into the homeowner’s pocket. It does so by offering a window for homebuyers to avoid the pop-up tax now and for the duration of their homeownership.

The Senate package (SB 1065, 790, 791, HB 4215, ) alleviates the issue of homeowners who continue to lose equity in their homes, while allowing potential homebuyers to move forward with the dream of homeownership without financial penalties. Senator Jud Gilbert (R-Algonac) and Senator Roger Kahn (R-Saginaw Twp) spoke on the Senate floor yesterday and stressed the importance of a “pop up” tax moratorium in order to boost Michigan’s housing market while spurring the economy.

Details of the legislation include:

• 791 (Kahn substitute) offers immediate substantial relief for Michigan taxpayers who purchase a home within the next 33 months.

• SB 1065 (Cassis) – Increases the Homestead Property Tax Credit from $1200 to $1300 to those who qualify

• 790 (Pappageorge) – Increases the income thresholds of the Homestead Property Tax Credit by $10,000

• 4215 (Gaffney) Extends principal residence exemption to unsold homes

You may recall that a similar package was introduced in the House last year, which implemented an 18-month moratorium on the “pop up”. The Senate plan creates a 33-month window. It works by providing an income tax credit to reimburse homebuyers for any “pop up”. Those homeowners with no income tax liability would still receive a check from the state for that “pop up” amount. Jeff Young, 2008 President of the Michigan Association of REALTORS® said, “While the House and Senate plans differ in their mechanics, we are confident that both sides will come together and work to provide aid to homeowners and homebuyers. This will give Michigan’s economy a much needed shot in the arm. I’m extremely pleased that both House Speaker Dillon and Senate Majority Leader Bishop are working on much needed relief. It is obvious that both the House and Senate understand the important economic role the housing market plays. This is a historic time for homebuyers, and it’s a great time to buy.”