Nancy Moeller's Blog

Last year, the President approved the "Mortgage Forgiveness Debt Relief Act of 2007". This legislation excludes the discharge of indebtedness from taxable income. Wow, that's great, right? Maybe.

Before you enjoy the wave of relief or bring up this wonderful nugget at the next dinner party, be aware that there are some strict guidelines, complicated rules and strange anomalies that must be weighed. Here is a layman's list of warnings:

• The property must be your principal residence (as defined by the deduction of mortgage interest rules) ... and investment property does not qualify!
• If the forgiveness relates to a loan modification, your tax basis is reduced and may ultimately lead to tax on the GAIN from the sale of the property!
• Your state may have different rules and you could have STATE income tax!
• Even if you do qualify, you may still have a GAIN on the sale of the property!
• Foreclosures DO NOT qualify as they are "sales" to satisfy mortgages, not a discharge of debt. Again, the result may be a taxable GAIN! (This is more common on homes that have been refinanced over the years)

What does all this mean? Before signing a loan modification, short sale or allowing the property to be foreclosed upon, call your trusted tax advisor for advice on your situation and goals. There are no cookie-cutter, one-size-fits-all answers. However, there is a BEST answer for YOU. The key is to explore your options before you jump forward.

In Orange and Riverside Counties, CA ... you can call me personally to discuss your options. As a CPA and Realtor, my goal is to protect our client's financial interests, minimize the tax impact of their decisions and help support their goals.

Much success,

Nancy Moeller, CPA, REALTOR

Seven Gables Real Estate

714 276-7006

With all the yard signs and advertisements promising to help homeowners facing foreclosure "save their credit" or "modify their loan" or "avoid bankruptcy", it's tough to know where to turn. Should a homeowner attempt to modify their loan, short sale their home or allow the bank to foreclose?

Here's our advice:  Beware of Realtors, loan modification companies or anyone else who provides an immediate answer. The only answer is that it will depend upon on each homeowner's individual situation and personal goals.

When considering a loan modification, the determining question is whether a homeowner will be able to afford the modified payment and live with the new terms. Even though a homeowner must qualify for a loan modification, approximately 80% of successful loan modifications find themselves delinquent again within six months. Ouch.

When considering a loan modification, short sale or foreclosure, the best person to call is not a Realtor or attorney, but rather a CPA and trusted financial advisor. Why? The tax consequences can be severe. Strange, but true ... you may have a HUGE tax bill in the form of both tax forgiveness and gain (yes, gain) on the sale of your residence. Yes, there are exceptions, new legislation and other options, but you must know what they are and make sure you are complying with each and every requirement. I'll talk more about this in future blogs. My point today is simply to encourage homeowners to make the call. 

When my partner and I started our real estate practice, I had no idea how much I would be tapping into my experience as a CPA. There is not a single transaction that has not required council regarding tax consequences, financial planning and budgeting.

Before a homeowner buys or sells property, their first call should be to their CPA, tax attorney and/or estate planner. These are HUGE transactions and the tax consequences require a expert to determine the total financial impact of a homeowner's immediate and long term decisions. Realtors sell houses. Tax experts advise on impact. We need both.

Much success,

Nancy Moeller, CPA, REALTOR

Seven Gables Real Estate

714 276-7006