Expiring Bush Tax Cuts Include Mortgage Debt Relief

Regardless of which box you are checking in the upcoming election, you should be aware that the expiring Bush tax cuts, made famous by the recent presidential debates, include a provision that excludes mortgage debt relief from taxation up to a maximum of $2 million.  If the Bush tax cuts are allowed to expire, the Mortgage Debt Relief Act will expire with them.  This means that homeowners who have received reductions in their mortgage debt either via short sales or loan modifications will be required to pay income tax on the amount of principal that was forgiven.  According to a recent article in The Chicago Tribune, this would amount to around $19,000 in taxes owed for the average middle class relief settlement.

There appears to be bi-partisan support in both houses for extending the mortgage debt relief portion of the Bush tax cuts for another several years, but without extending the rest of the cuts it seems unlikely that a bill supporting the extension of just the mortgage debt relief portion will even reach a vote prior to the November elections.  

This is especially bad timing when you consider that the nation’s five largest banks (Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.) have recently increased their offerings of principal reductions and other relief to homeowners as part of a $25 billion settlement with federal and state officials over foreclosure abuse allegations.  If the Bush tax cuts, including the mortgage debt relief act, do expire then these principal reductions will be reported to the IRS and will appear on homeowners’ tax returns as income.

Experts agree that while the housing market shows signs of stabilization, extending these tax cuts is vitally important to keeping the housing recovery on track.  "Extending this tax relief is critically important," said Lynda Gledhill, a spokeswoman for California Attorney General Kamala Harris. Harris was a key player in the national mortgage settlement.  "It is difficult to imagine strapped homeowners able to take advantage of these and other market-restoring programs if they have to pay federal income tax on the principal reduction or short sale as 'income,'" Gledhill said.

My personal opinion is that we will probably see Congress find a way to extend these tax cuts for another 6 months to a year, much as they extended the first time home buyer credit in 2010-2011.  Regardless, one thing is certain.  If you are even remotely considering selling your home via a short sale, now is the time to do it.  If you are able to close before the end of the year, you know that you will be able to take advantage of the tax credit.

Timing the Bottom of the Housing Market Unimportant

“Are we there yet?”  This is a question fielded to me almost daily by investor clients wanting to know if now is the right time to step into the Las Vegas investment real estate market.  Have prices started rising again?  Have we (finally) reached the bottom?

Over the last year or so I have answered this question by providing my clients with a barrage of data supporting the notion that we have, in fact, reached the bottom of the real estate crash in Las Vegas and that we are headed up.  (This data has only become more compelling in recent months.  Median home prices in Las Vegas have risen for the past eight months in a row.)  

But, perhaps my answer, accurate as it is, is not the most informative.  Perhaps the best answer to the “Are we there yet?” question is “It doesn’t matter.”  Lawrence Yun, chief economist for the National Association of Realtors, wrote an article recently discussing real estate trends over the last 30 years.   The statistics he shared were surprising even to a die hard real estate proponent like myself.  Yun revealed that in the 30 years from 1981-2011 home values more than tripled!  This to spite enduring the worst real estate crash on record.  This means that households who purchased properties 30 years ago are seeing a nice return on their investment.

Yun also highlighted an enlightening fact contrasting the financial position of home owners vs. renters.  Renters’ typical net worth today is $4,000.  This hasn’t changed much over the last few years, as renters have remained mostly insulated from the losses sustained by the housing market.  However, while the average net worth of home owners has dropped significantly since the housing bubble burst, it remains around $160,000, significantly greater than a typical renter.

These facts illustrate an important principle of long term real estate investment strategy...if you buy to hold it doesn’t matter if we’ve reached the bottom or not.  Those who bought real estate 30 years ago made a very successful investment even though their home values declined dramatically as a result of the housing bust.  Obviously, in order to turn a profit, it is important to avoid buying real estate at the absolute top of a precipitous market, but if you make sure that your properties cash flow at the time of purchase, you are virtually guaranteed that you will see positive appreciation over the near and long term.

Nevada Court Paves the Way for More Foreclosures

And I don’t say that as if it is a bad thing.

The Nevada Supreme Court voted 7-0 to uphold the role of MERS (Mortgage Electronic Registration System Inc.) in the foreclosure process.  MERS is an industry database that was designed, according to William Uffelman, president of the Nevada Bankers Association, to “bring loan recording into the 21st century.”

Consumer advocacy groups had argued that the involvement of MERS in the foreclosure process made it impossible for delinquent homeowners to face an actual lender.  Had the involvement of MERS been ruled unlawful, banks would have faced a much more difficult path through the foreclosure process.

Jacob Hafter, an attorney for a homeowner suing MERS, believes that the Nevada court "has cleared a path to begin foreclosing in a mass effort."  That might not be such a bad thing.  Foreclosures have dwindled to a mere trickle since AB 284 was passed late last year.  The result has been extremely light inventory and the creation of what some fear will be yet another artificial rise in home prices here in Las Vegas.

It remains to be seen how much effect this ruling will actually have on the number of foreclosures processed in Las Vegas.  It is also unclear whether banks would begin to liquidate foreclosures individually, on the open market, as they have in the past, or through larger, bulk packages of properties, as seems to be the current trend.  Either way, Team Plantone is poised to help our investors purchase these new foreclosures.  We are very familiar with the traditional trustees’ sale method of liquidation and we have also positioned ourselves to give our clients access to larger, bulk packages of REOs as they come available.

Full Service Real Estate Brokerage - Missing the Forest for the Trees

There is an old adage that says, “Don’t miss the forest for the trees.”  In other words, don’t get so caught up in minor details that you miss the big picture.  This is good advice for all of us...especially me.   Sometimes I write and talk so much about the areas that myself and my team specialize in, that I forget to mention all the other folks at VIP Realty and all the other services that we offer.

Most of you who have followed my blog and articles for the last several years are very aware that I specialize in finding investment properties for my clients and helping to place quality tenants in these properties so that they become turn-key, cash flowing investments suitable for local Las Vegas buyers as well as out of town investors.  You probably also know that many of these properties happen to be located in the Northwest area of Las Vegas that we call the “New Northwest.”  This is because this area of Las Vegas often provides the best combination of newer homes, low prices and high rents.  You have most likely also noted that I have closely followed the MGM Signature property on the Las Vegas Strip and that I have sold dozens of these units because I find them to be the best value on the Strip.

What many of you may not be aware of is that our business has grown exponentially since I first obtained my real estate license several years ago.  I am now a real estate broker presiding over an office full of agents and support staff that handles listings throughout the Las Vegas valley.  We have full time property managers, transaction coordinators, sales agents, buyers’ agents, agents who specialize in rental listings and office staff on site in our new office.  We have agents on our team who specialize in Henderson, Summerlin, Aliante, North Las Vegas, Southern Highlands, Old Las Vegas, and everywhere in between.  We have agents that excel at taking listings and those that regularly take buyers on tours of homes in the local area.

Whether you are an investor looking to purchase income property in Las Vegas or an owner occupant looking for a great deal on a new home, we can help you achieve your goals.  If you are a renter, we have a large selection of newly renovated properties available, many with lease options or owner financing.  No matter what your Las Vegas real estate needs may be, we have someone who can provide you with prompt, personal service.