Mortgage Foregiveness Debt Relief Act of 2007

On December 20, 2007, President Bush signed into law the new Mortgage Forgiveness Debt Relief Act of 2007, H.R. 3648; Pub. Law 110-142. That law includes several tax changes relating to real estate transactions. The first major change pertains to forgiveness of mortgage debt resulting from short sales, foreclosures, etc. Prior to the new law, any forgiven debt would be taxable as income. The change now states that any forgiven mortgage debt is excluded from income if: - The property subject to the mortgage is a Principal Residence; - The mortgage indebtedness is related to Acquisition Indebtedness; and - The forgiven indebtedness is NOT related to services performed on behalf of the lender or is directly related to a decline in the value of the residence or to the financial condition of the taxpayer. The amount excluded from gross income shall be applied to reduce the basis of the principal residence of the taxpayer. The foregoing requirements would appear to exclude forgiveness of mortgages acquired through refinances and home equity loans or lines of credit obtained after purchasing the property. Before advising your clients that they will not have to pay income tax on any forgiven mortgage amount, be sure to have your clients consult with an accountant or tax attorney to be sure this law would apply. Additionally, this change is applicable only for forgiven indebtedness from January 1, 2007 to December 31, 2009 and is limited to $2 million of debt forgiven. Another change affects homeowners’ deductions of private mortgage insurance. Prior to the new law, effective 2007, homeowners were able to deduct payments of private mortgage insurance on the income tax return. This deduction was only to have been for 2007, terminating as of December 31, 2007. The change in the law now extends private mortgage insurance deductions through December 31, 2010. Additionally, the new law affects a surviving spouse’s ability to take the joint capital gains exclusion for property owned when their spouse was alive. Prior to the new law, a surviving spouse could only take the joint exclusion of $500,000 if the principal residence was sold within one year of the spouse’s death. The new law retains the joint exclusion but extends a surviving spouse’s ability to use the exclusion for two years from date of death if the property was used as a principal residence for at least two out of the previous five years prior to the spouse’s death. This is not intended as legal advice . Any additional detailed questions should be directed to an accountant or a tax attorney.

New Montgomery County Recordation Tax Law

New Montgomery County Recordation Tax Law
Effective March 1, 2008

Effective March 1, 2008, the recordation taxes for Montgomery County, Maryland will be increased to $10 per $1000 for consideration payable over $500,000.00. Consideration payable of $500,000.00 or less will continue to be taxed at the current rate of $6.90 per $1000.00. The tax calculation will continue to exempt the first $50,000.00 of the sales price from recordation tax if the property is to be owner occupied. The new Act applies to any transaction that occurs on or after March 1, 2008. The new Act, however, does not affect the existing State and Montgomery County transfer taxes. To avoid any confusion in advising or preparing net sheets for your clients, we are providing the following examples as to how the new Montgomery County recordation tax will be applied.

Consideration (i.e. Sales Price) of $600,000.00 for a Principal Residence:
First $50,000 of sales price is exempt from recordation tax
The next $450,000 of sales price is taxed at $6.90/$1000
The remaining $100,000 of sale price is taxed at $10/$1000
Total Recordation Tax: $4,105.00
Total County Transfer Tax (1%): $6,000.00
Total State Transfer Tax (.50%): $3,000.00

Consideration (i.e. Sales Price) of $600,000.00 but will NOT be a Principal Residence:
First $500,000 of sales price is taxed at $6.90/$1000
Next $100,000 of sales price is taxed at $10/$1000
Total Recordation Tax: $4,450.00
Total County Transfer Tax (1%): $6,000.00
Total State Transfer Tax (.50%): $3,000.00

Consideration (i.e. Sales Price) of $375,000.00 for a Principal Residence:
First $50,000 of sales price is exempt from recordation tax
Remaining $325,000 of sales price is taxed at $6.90/$1000
Total Recordation Tax: $2,242.50
Total County Transfer Tax (1%): $3,750.00
Total State Transfer Tax (.50%): $1,875.00

Consideration (i.e. Sales Price) of $375,000.00 but will NOT be a Principal Residence:
Full sales price of $375,000 is taxed at $6.90/$1000
Total Recordation Tax: $2,587.50
Total County Transfer Tax (1%): $3,750.00
Total State Transfer Tax (.50%): $1,875.00

The foregoing is not intended as legal advice and additional questions should be directed to the Montgomery County Tax Office.