About Leon County, FL

I have had quite a few conversations lately about the capital gains tax that results from a short sale or foreclosure, and what exactly what you should do when the lender sends you an IRS Form 1099-C.

First of all, as a quick disclosure to first-time readers ...

OK, my "I'm not a Tallahassee accountant" disclosure is out of the way, let's get back to the topic at hand regarding IRS Form 1099-C.

What Is An IRS Form 1099-C

Recently, a long-time reader asked "why did I get a IRS Form 1099-C from the lender, and what does the amount on the form represent?"

I [gave him my "I'm not a Tallahassee accountant disclosure] explained that the Form 1099-C is sent by the lender as a "forgiveness of debt." The following comes from the language right on the form:

Basically, the way I understand it is the IRS Form 1099-C has one of two purposes for a real estate investor who disposes of a distressed property:

1. Through Foreclosure: The amount on the 1099-C represents the same thing as a sales price would had you sold the property. From that price, you should be able to deduct your cost of sales (in the case of a foreclosure, legals costs paid, etc.), your basis, and you most likely have some recapture to add back in. For simplicity sake, think of the amount as the gross sales price attained.
2. Through Short Sale or some other non-foreclosure sale remedy: The amount on the 1099-C should represent the total loss realized by the lender (loan amount + interest + penalties + legal costs minus net from sales). I have heard of all sorts of numbers that come back from this, but it really should be an amount equal to what they took as a loss. This number then should be added into your formula when calculating your tax on home sales gain [loss] (capital gains tax rate multiplied by [net from sales - basis + debt forgiveness + recapture]).

Scrutinize Your IRS Form 1099-C

Here's two additional questions to ask your Accountant:

1. Has the lender properly calculated the IRS Form 1099-C amount?
2. Can the lender add to the IRS Form 1099-C any uncollected fees to their loss, or must it be purely principle, interest, and penalties only?

I hope this helps clear-up what to do (tax wise) after you dispose of an investment property through short sale, deed-in-lieu, or foreclosure. If you have any additional questions or comments about the IRS Form 1099-C, post them below in the comments section and I will reach out to some Tallahassee accountants to chime in for the right answers.

There are millions of baby boomers around the world trying to decide where to retire, and if long-term reader "Bill" has anything to with it, they are going to choose Tallahassee.

Bill has given the Tallahassee Real Estate Blog great feedback over the years, and his recent comments center on the fact that Tallahassee needs population growth to help the housing market recovery, and courting retirees could be a very wise part of this solution.

We have folks running around trying to attract new business and get "visitors" yet there appears to be no concerted effort to market Tallahassee as a great place to retire. Retirees are clean industry with lots of disposable income -- and a good solution for turning around the housing market and home values. - Bill Z

He adds that Tallahassee is "sorta just like home" for many who come here, so getting Tallahassee into the running for "where to retire" should not be hard to do.

People Want To Know Where To Retire

According to Google, the popular search engine is asked "where to retire" 22,126 times each day in the US alone. It seems as if finding where to retire is a very popular question right now, and we need to get the word out that Tallahassee is a very suitable answer.

There are so many logical reasons that Tallahassee could become a top destination for people who are looking for "the next phase of their life." As Bill pointed out in his message, Tallahassee is

• not South Florida
• hilly
• blessed with four seasons
• seasonal, but with benign winters
• oozing "home town feel"
• not prone to storm surge
• not provincial
• relatively sophisticated due to government and the universities
• where to retire

Tallahassee: Where To Retire

Last August, we shared an article from the Democrat, written by Elizabeth M. Mack, that announced the new Choose Tallahassee initiative. This marketing campaign was designed to lure more baby boomers to the Tallahassee area.

Here we are six months later and that campaign apparently died. There is a choose Tallahassee website that shows little, if any traffic (website rating on Alexa). As a matter of fact, the article I wrote about the campaign is the #1 search result on Google for "choose Tallahassee."

This means that many of us understand the need to get the word out about Tallahassee, but there is no collective effort to make it happen.

How To Help Spread The Word About Tallahassee

This part is simple, and we all play a part in the getting the word out about Tallahassee.

Help spread the message. When you see positive articles on Tallahassee, share them!

Put them on Facebook and any other social media applications that you use. The viral effect of all of us spreading the word about the benefits of living in Tallahassee could help restore our local economy, as well as the slumping housing market.

You can be part of a great support system for Choose Tallahassee, so help spread the word! Look to the top left margin on the Tallahassee Real Estate Blog and the social sharing buttons are all there. Spread the word in your network, and ask them to do the same.

And the next time you are asked about where to retire, remember to tell them to check out Tallahassee, Florida.

There was an article in yesterday's New York Times that explained the new mortgage relief plan, which is due to be signed today, is very close to completion.

Like so many articles that have been written about the housing market crisis, this one liberally showed how all the victims will receive assistance.

In case you do not remember, the victims of this are the homeowners who have or will lose their homes to foreclosure due to their failure to make the payments on the loan.

They are victims because the banks wrongfully forged documents to make the foreclosures happen.

Now I certainly understand why the Feds want to go after and punish the banks for forgery, but I'm having a problem labeling the homeowners as "victims" of this crime.

Have their been any cases reported where banks forged documents to foreclose on anybody who was "current" on their loan?

Everybody is lining up to take shots at these banks as if they were attacking performing loans. These are loans that are in default!

You are not going to fix the housing market by handing out money to people who are not making their mortgage payments. But apparently, the Obama Administration sees otherwise:

“This will be one of the most significant steps in the recovery of homeowners, neighborhoods and the broader housing market from the worst collapse since the Depression.” - Shaun Donovan, the Secretary of Housing and Urban Development

This makes me sick.

Mortgage Relief Plan Is Counter Productive

Let's not confuse two very separate issues that are really at play here.

1. Many lenders forged documents (they broke the law) and they should be punished
2. What harm has there been to homeowners, and why are we taking billions of dollars from banks and just giving them out to people who defaulted on their loans?

Maybe I'm reading this wrong, but I have yet to hear stories from the "robo-signing" scandal where people were wrongfully foreclosed upon.

These lenders (or their legal representatives) created documents to show they owned the loans (meaning so they could have the legal right to foreclose). Again, have the FBI throw the wrong-doers into jail for loan fraud.

But why take money from the shareholders of these banks and give it to people who were in default of their loans? Is this really justice for anybody, or just a re-distribution of wealth?

Mortgage Relief Plan Is Fraud

Unless I completely missed the boat on this, I would think that this mortgage relief plan is as fraudulent as the methods the banks used to foreclose on the loans in question.

The comment from the Secretary of Hud is an insult to the intelligence of the American people. The US mortgage market exposure far exceeds a trillion dollars, giving handouts of $18B to $25B to a small fraction of the market is not going to have an impact.

Think I'm wrong? I said the same thing about the Homebuyer Tax Credit when it was first envisioned several years ago. The Tallahassee housing market (as well as the US housing market) has since returned to pre-tax credit levels, and the US government is going to receive less revenues from taxes for the coming few years.

Keep the government out of the housing market recovery. The mortgage relief plan is a terrible mistake that is a clear re-distribution of wealth (which I guess is Obama delivering on his campaign promises).

When I attempt to put a time frame on the real estate market recovery, I start by looking at real estate supply and demand numbers for the entire country.

It is obvious to me that the supply of homes for sale still far outweighs the current rate of demand, yet when I read most of the marketing and blogs produced by real estate agents, the message seems to be that "the worst is now behind us and we are well into the heart of a real estate market recovery."

I'm sure for some that is true, but I suspect that most are just like Tallahassee, and that is still seeking a real estate market recovery.

Real Estate Market Recovery Begins With Supply And Demand

The real estate community is quick to report falling supply from coast to coast, but they are kidding themselves and anybody else who reads what they are publishing.

Don't fool yourself on supply. Sure, the number of homes for sale in Tallahassee and elsewhere is finally on the decline, but for most markets it is because many sellers have not re-entered the market after failing to sell (something we track regularly at the Tallahassee Real Estate Blog).

Think about it. In Tallahassee, our current rate of sales (# of homes selling each day) is about 55% of its historical average. Yet supply is falling?

The number of new homes being built is at an all-time low, but run the numbers ... it is not the reason for falling supply. Currently, for every 3 homes that do sell, there are more than 3 that fail to sell. And one of those failures leaves the market to wait.

Household Formations Is Not A Quick Fix

One thing that would certainly help bring about a real estate market recovery would be an increase in the household formations that have cooled since the peak of the market.

Hopefully, millions of people this year are going to crawl out of their parents' basement and purchase (or lease) their own place, and this would definitely be a boon to the demand side of the equation. Of course, it was supposed to happen last year, but apparently these people need jobs before they are ready for a place of their own.

In reality, we are doomed if we think first-time homebuyers are going to be the bedrock of the real estate market recovery. They will certainly be the driving force behind the re-balancing of supply and demand, but there is another problem that needs to be addressed, and household formations will not occur quick enough to bring about a recovery in less than five years.

Must Fix Demand Before We Can Diminish Supply

While new household formations will help chip away at the supply and help start a real estate market recovery, there is something that causes me more concern right now.

We have to do something to free up the buyers who want to move, who have a history of owning a home, but have a certain condition that is currently stopping them from buying a home.

What condition could this be ... ?

They own a home and do not know how to get it sold.

The fact is they owe more on their home than it is worth, so they are not moving.

If they sell their home and bring cash to closing, then they do not have enough equity to buy a replacement home. If they short-sale a home (to save the cash), then they cannot get a loan for a few years and therefore cannot buy a home.

Rather than make a decisive plan of action, many of these "would be buyers" are sitting in their homes and waiting for a real estate market recovery.

The image on the right is fairly accurate for current conditions in the Tallahassee real estate market. The image shows that for every 10 "historical" homebuyers in Tallahassee, 1 is a pure investor, 4 are first time homebuyers, and five need to sell a home before they buy.

Right now, more than half of these final five are underwater in their homes (or have too little equity to justify a move). And we know that the glut of supply is creating pressure on home values, so this situation is actually getting worse, not improving like we would expect during a real estate market recovery.

Fewer and fewer homeowners are in a position to move. Home values in Tallahassee are down about 1/3rd from the top of the market, and that was over 5 years ago.

Kick-Starting A Real Estate Market Recovery

We need to modify the way we are handling short sales. There are plenty of homeowners who want to move and are upside-down on their mortgages, but are current on their payments.

Banks would be wise to work short sales out for these people and not brand them as credit risks. I have long-advocated for a short sale amnesty program, as it would accelerate the real estate market recovery and slow down the real estate depreciation that is plaguing most US real estate markets.

Until we see something happen to free-up these trapped seller/buyers, we really must consider our current situation a crisis, and not a real estate market recovery.

Homes in Tallahassee neighborhood Killearn Lakes have dropped in value by more than a third since the peak of the housing market.

As one of the most popular neighborhoods in Tallahassee, Killearn Lakes offers a great representative view of homes in Tallahassee, and currently there are 42 homes for sale in Killearn Lakes Plantation.

In the graph on the right, the green vertical bars show the number of arms length home sales each year, the red shows the number of distressed home sales each year, while the brown line measures the average price of homes in Tallahassee neighborhood Killearn Lakes that were sold each year.

The number of distressed homes in Tallahassee in Killearn Lakes Plantation is rising, while the average price is falling.

Killearn Lakes Is A Bell Weather

When we assemble a graph of average home prices in Killearn Lakes, we find a continuous slide of real estate depreciation which has reach 35% for homes in Tallahassee (Killearn Lakes).

This seems fairly consistent with the rest of the Tallahassee real estate market, and it means that most of us have lost about 1/3rd of the the value of our homes since 2007.

In the real estate graph on the left, the blue bars measure the total number of sales each year, while the red line plots the average value of homes in Tallahassee neighborhood Killearn Lakes.

Recent Home Sales In Killearn Lakes Plantation

The following map shows the recent sales of homes in Tallahassee neighborhood Killearn Lakes Plantation.

For the map to show correctly, you have to click through to visit the Tallahassee Real Estate Blog, then you will find the interactive map where each point tells you the home address, price, location and value.

Recent Sale Of Homes In Tallahassee Killearn Lakes