Short Sales - What you need to know about mortgage debt forgiveness.
With the value of properties dropping over the last couple of years many people have been forced to sell their homes for less than they owe on the property. When this happens, the bank can require that the people who owe the mortgage still owe the outstanding balance or it can forgive the outstanding amount, called mortgage debt forgiveness. While having the bank forgive the outstanding mortgage balance sounds great, there are other considerations that you need to think about first.
Generally, any debt that has been forgiven is considered taxable income by the IRS. However, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 which forgives taxes on the amount of mortgage forgiveness if a few conditions are met. First, the property sold on which mortgage forgiveness was given must have been the taxpayers primary residence. Second, if the debt forgiven was for a refinance, the income from the debt forgiveness can only be forgiven if the refinance was used to improve or repair the primary residence. Thus, if you refinanced and used the money to pay off credit cards or other debt, the debt forgiven would still be taxable as income for IRS purposes.
Gambling Gets Expensive
The Internal Revenue Service issued a decision this week that casual gamblers recognize wins or losses when they redeem their tokens. This means that if you go gambling for the weekend and have a win on the first day and then lose money on the second day, each time you cash in your tokens is a separate recognition event for income tax purposes. Thus, if you turn in $200 for chips and then walk out with $800, the $600 is your win and must be added as income when you complete your taxes, even if you gamble other times throughout the year for a loss.
Multi-family Investments - Great options for this economy
Yes it is difficult to get a mortgage right now. Banks are loaning money but they want more downpayments and they are taking more precautions to protect their investments. As such, I would recommend that couples looking to purchase a home consider a multi-family.
Multi-families are great because it allows the couple to purchase a home, thus saving them from paying those pesky association fees you get with condos and many townhouses. In addition, the couple becomes the landlord rather than paying someone else.
If a couple purchases a 3-family home, they can rent out two of the levels and will likely make enough money doing that to cover most if not all of the mortgage for the entire property. In addition, if the couple can get people to sign a lease to move into a level of the home prior to closing on the property, that might influence the bank because it will show that you are getting additional income. As banks are very concerned about debt to income ratios right now this can really help you get the mortgage you need at an interest rate you can be happy with.
Using a reverse mortgage to supplement income
As IRAs, 401ks and other retirement accounts have lost value due to the financial decline of the recent years, many seniors have lost a chunk of their retirement income. Thus, their accounts and assets are worth less but their living expenses have not decreased. This is a problem.
Many retirees spend the winter in Florida and then summer in other areas. While this was great in the past, due to their loss of income, it might not be feasible for them to continue this lifestyle right now. They can try to rent out their properties in Florida to supplement their income. They can also try to sell the properties, but don’t expect to get much for them due to the glut of foreclosures on the market in Florida right now. The other option that seniors can take advantage of is a reverse mortgage.
For the last ten years or so banks in Florida have been touting the benefits of reverse mortgages for seniors. A reverse mortgage allows a senior citizen to take out a mortgage against the value of his home. Unlike a home equity loan, the senior doesn’t have to make monthly payments to pay off the mortgage. Instead, the mortgages are paid off when the senior dies or moves out of the house. At that time the house is sold and the bank is repaid for the mortgage and any remaining proceeds from the sale go to the senior or his estate. This gives the senior money now that he needs to live off and allows for it to be paid back at his death.
There is a concern that banks might not be interested in these types of loans right now as housing prices are falling. They might be worried that the house won’t cover the cost of the mortgage at the senior’s death. However, these mortgages are backed by the government. In addition, Congress increased the amount that can be borrowed from a house from $417,000 to $625,000 this year. Another great feature of these loans is that the fees banks can charge are capped by the government. All in all, these mortgages can offer seniors another option to supplement their income if they need additional help.
What You Need to Know Before Starting a Business
Many people who have been laid off due to the poor economy have decided to take this as an opportunity to follow their dreams and start their own business. While most Americans might not realize it, America runs on small business. Yes, we have the big boys like Wal-Mart, Ford, Bank of America and many others, however, the majority of Americans work at small businesses with less than 25 employees that makes less than $5 million dollars a year. I have personally worked for a few such businesses and have spent time working with others to help them get started.
There are many benefits from working for a small company. However, if the company isn’t run properly, be careful. The first thing that new business owners need to do is decide the type of business form.
If the business is going to be a corporation, LLC, or partnership you need to set up a separate business banking account to use for the business. This is extremely important but is often overlooked by small business owners just starting up. If you don’t maintain a separate account for business purposes, it will be difficult to maintain proper books for the business which will really hurt when tax time rolls around.
Owners also need to maintain proper accounting books for their business. This allows the owner to see where the money is going, which products are making money, and whether the business is actually making a profit. Just because a business is bringing in money doesn’t mean that it is actually making a profit. To have a successful business you need to know what is happening to your cash.
Using A Budget to Fix Finances
Setting a budget for your family is a strategy to fix your finances. I know we all grumble about how there is not enough money coming in to actually budget, especially if you are on a fixed income. I have definitely been there. It is hard when you are living from paycheck to paycheck and then there is the rent/mortgage, utilities, gas, and other household expenses. So I try to list some tips here and hope that this can help you.
The first thing is to get a reality check on where your money is going. We miss so many of the small things such as cigarettes, candy bars, and other small items. However, you should spend a moment to write down all of your expenses you have coming in and what you think you spend out. Of course list the major items first such as your rent, utilities, car payments, etc. If you cannot do this at this time, then I suggest start a spreadsheet or use your checkbook register to track everything that you spend your money on. You can also do this on a plain piece of paper. The key is to just do it.
Once you have a list of all your income coming in and a list of everything you spend your money on (expenses) then you should be able to devise your budget. Elements of a budget should list things such as your rent/mortgage, car payments, medical insurance, car insurance, food, and recreation expenses. Start with your income and then start subtracting your expenses, this will allow you to access rather or not you have disposable income or not. Disposable income is income that is left over after all your expenses have been paid. If you are really optimistic, you can devise a yearly budget instead of a monthly budget by multiplying your amounts x 12.
Now since you know where your money is going you can begin to see those areas in which you need to cutback on your spending on. Perhaps if you are like most people who struggle day to day, then you will probably have to find a part time job or start a small business that does not have huge upfront costs to support your family.