Good news at tax time for short sellers…

Short sale tax break signed into law

President Obama makes it official

white house and dollar

Homeowners who had short sales in 2014 can now breathe a giant sigh of relief, as the Mortgage Debt Forgiveness Act was signed into law by President Barack Obama.

Under the Mortgage Debt Forgiveness Act, any mortgage forgiveness achieved in a short sale is not counted as income for homeowners whom banks allowed to sell their homes for less than the amount of their mortgage.

The Act was due to expire in 2014, but was extended by recent votes in Congress.

The Mortgage Debt Forgiveness Act passed by a wide margin in the House of Representatives three weeks ago and passed 76-16 in the Senate two weeks ago.

But the Act wasn’t made official until President Obama signed it into law, which he did last week.

The extension only applies to short sales conducted in 2014. Any further extension of the short sale tax break would need to be taken into consideration by the newly elected members of Congress when the Congress begins its 2015 session in January.

According to a recent estimate from RealtyTrac, the average short sale has an estimated mortgage forgiveness of $88,456.

And according to a further data provided by RealtyTrac, there have been more than 121,700 short sales through October of this year, with a total mortgage debt forgiveness of nearly $10.8 billion.

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Can you deduct your remodel? Some resources to find out…

Tax Tips Help Clients Deduct Remodeling Costs

HouseLogic | January 24, 2014 | link

Can homeowners deduct the cost of their kitchen remodel on their 2013 taxes? How about the interest on the home equity line they used to fund their bathroom upgrades?

Answer those and other homeownership tax questions by posting to your website a free article, Your Top Homeownership Tax Questions Answered, from the REALTOR® Content Resource. It’s one of five free articles now available in the January “Get Your Tax-Filing Party Started!” article package. Share all five today.

Tax 101 for Landlords

Do You Understand Income Tax Considerations of Rental Properties?

Professor Baron | Zillow Blog | March 3, 2014 | link

A rental property can generate “taxable losses” that can be used to reduce your normal salary income, hence the federal income taxes you pay. It’s difficult for most people to understand how taxes work, and even more confusing once we get into the realm of rental properties and taxes. Note that understanding how taxes impact personal residences are a completely different topic, as those are governed by totally separate tax codes and go elsewhere on your 1040 form.

Below are some of the basics to understanding rental properties and federal income taxes.

Often I hear people saying that they want to buy some real estate to save money on income taxes. However, depending on your tax situation, owning real estate might not save you a dime on taxes. It wholly depends on your specific tax picture and the IRS rules about Passive Activity Loss Limitations

First and foremost you should never make real estate investment decisions based solely on tax considerations. The first order of business is do your due diligence and determine if an investment makes sense based on cash flows, cash on cash returns, renovation costs, rental income, financing, and the risk of any particular property. Once you believe it makes sense in every other sense, then you can contemplate the tax effects.

Important note: Always have a CPA, attorney or licensed tax professional guide you through your individual tax picture — this article is an illustration of one scenario but your scenario can be very different based on your financial picture.

To better understand, let’s first quickly discuss the IRS 1040 form.

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It’s not too late to save!

There’s still time to lower your 2012 tax bill

Stephen Fishman | Inman News | Friday, April 5, 2013 | link

<a href="">Money and calculator</a> image via Shutterstock.Money and calculator image via Shutterstock.

There are only a few days left until the April 15 income tax filing deadline. If you’ve yet to file, are there any things you can do to lower your tax bill at this late date? You bet there are.

Make an IRA contribution

If you already have a traditional IRA (Individual Retirement Account), you can contribute to it up to April 15 and deduct the amount from your 2012 income. If you’re under age 50 you can contribute up to $5,000. If you’re 50 or over, you can contribute up to $6,000. If you’re married, you can double the contribution limits. This is true even if one spouse isn’t working.

To take advantage of doubling, you must file a joint tax return and the working spouse must earn at least as much as the combined IRA contribution. There are income limits on the deductibility of your IRA contributions if you or your spouse are covered by another retirement plan.

If you haven’t already established an IRA, you have until 11:59 p.m. Eastern time on Monday, April 15 to open an account and make your contribution. You can open an account and fund it online at many financial institutions.

Make an SEP-IRA contribution

An SEP-IRA is a simplified employee pension. It’s very similar to an IRA, except that you can contribute more money under this plan. Instead of being limited to a $5,000 to $6,000 annual contribution, you can invest up to 20 percent of your net profit from self-employment every year, up to a maximum of $50,000 for year 2012.

If you don’t already have an SEP-IRA, you have until as late as October 15 to establish one and still make deductible contributions for 2012. However, the October 15 deadline applies only if you file an extension to file your 2012 income taxes. Otherwise, the deadline is April 15.

So, even if you don’t have the money right now, you can still take the deduction for your 2012 taxes so long as you make your contribution by the deadline.

Make a 401(k) or Keogh plan contribution

If you already have a 401(k) plan or Keogh plan, you still have plenty of time to make a deductible contribution for the 2012 tax year. You have until October 15 to make your 2012 contribution if you file an extension to file your 2012 return. However, you must have established your plan by December 31, 2012 to deduct a contribution for 2012. Depending on your income, you can contribute up to $50,000 per year to these plans.

Make an HSA contribution

If you set up a Health Savings Account by the end of 2012 and paired it with a high deductible health insurance plan, you have until April 15 to fund it and deduct the payments from your 2012 taxes. Up to $6,250 can be deducted by families; $3,100 for individuals. You cannot establish an HSA in 2013 and make deductible payments for 2012.