Bush tax breaks might be history

The very tax break that is helping our real estate market recover and allowing lenders to work with home owners to avoid getting kicked out of their home is now at risk of ending.

What does that mean for home owners who can no longer pay their mortgage, and are not willing to just give up?

Lets start with the current incentive for home owner to leave their home.

Lets take two major lenders who are paving the way for our market recovery. Bank of America (BofA) and Chase.

Both BofA and Chase started offering a cash on sale incentive above and beyond what the current HAFA incentive can offer. They are offering up to 30 thousand dollars at the close of escrow.

Now lets put this into prospective. You bought a home 4 years ago that you can no longer pay today. You are now forced into a bad situation. You can ride the defaulted loan wave and see where it takes you, or you can take action. When you finaly choose to take action (assuming you choose the correct decision by selling your home) you list your home at a fair market value, and the sale yields a massive loss.

For example

In 2006 you bought a home for $375,000.00 on an adjustable loan. Today your loan adjusted and your payment jumped almost twice of what you were paying. Then you lost your job. You now have to miss payments and since you don't have any money coming in you don't qualify for a modification. Your next step is to sell your home. When you put your home on the market you discover its only worth $210,000.00. So you still have a balance pending.

So this is how you have a short sale. The lender will most likely allow you to sell your home for less than what you owe, and in turn they will send you a tax form for the balance that was not paid called a 1099. The tax form translates to income to you in the IRS's eyes. (MONEY YOU MADE) Now here is where the Bush tax cuts help. If you lived in the home you can currently tell you tax preperer and they can get you out of paying taxes on that fake income. Once you and your agent close escrow you can get a check for up to 30 thousand dollars.

If the Bush tax cuts expire this will change. A client who chooses the correct route and short sells a home they live in they will now have to pay the full tax penalties on the "earned income" or better knowned as the pending balance.

Now depending on how much you normally make in a year this amount will most likely raise your taxable bracket by a few. Resulting in a massive tax hike.

If you are or know someone in this situation please be warned this will affect you/them.

Is there hope? Yes and unfortunately. Its political. The United States Senate and House of Rep. need to compromise, and send a bill to the President's office to be passed. This is easier said then done.

I ask everyone to embrace for a disaster. Here is why, there are so many aspects of the Bush tax cuts and so much government spending that if there is a compromise it would be hard to say if this prevision of the tax cut will survive. Heck its like rolling the dice.

Here are the biggest things to watch according to the way I see things.

1 Watch the president and his position. He wants to raise taxes on the wealthy (over 250k yearly income)
2 The Senate is mostly with this idea so count on strict opposition to anything else of what the presidents wants
3 Please watch the Republican House. I have heard 2 positions first and most unlikely is to allow the tax cuts expire. This will toss us off the so called Fiscal Cliff. It will raise taxes evenly, wealthy and middle class. It will also cut in to our massive government spending.
Another position is to negotiate and compromise with the Senate to come to an agreement.

Now I see a cross road we will have to face. The right offers economically correct choices but are harsh to our global economy. The left offers very comfortable options and increases our dependence on the very ones who pay the most of our tax revenue.

Over all I write this so we can plan ahead. We have to be READY for what ever comes our way. Make plans to negotiate not only with mortgage lenders but to negotiate with the IRS and any other lien holders who you owe money to. Build yourself a power team. A great agent like ME, a great tax advisor, a good IRS negotiator, and a real estate attorney if needed. this way you are covered for all aspects of the outcome.

I will update this as soon as I have more info and hear more bi or uni partisanship projections.