mortgage / home selling advice

[Rallispec]

I'm going to make this as short and to the point as possible. I've got a chance at a new job in a new city... My house isn't worth what i paid for it last year and somehow i've got to get rid of it (or rent it) before moving...

Since I bought my first home last year the market in this area has gone straight down. If i were to put my home on the market today - Best case scenario is that I list it at way I bought it for. However I doubt I'd actually get that (most homes are selling for 10k less right now) - and I'd lose some more on realtor fees....

Add to that i'm paying an interest only loan and did not pay any down payment when I bought. So I still owe %100 of my loan.... Assuming I come up $15k short at sale time --- somehow or another I figure I'm going to have to come up with that money.

What should I do - and does anyone know what that will do to my taxes if i lose money on a sale? (reverse capital gains???) -- I can probably come up with the money to cover however short I am at sale time (which would be the money i was going to put towards a down payment on a new house) - honestly if i could just roll over the mortgage balance on to a new home loan that would be the best. (doubt they do that)

and am I going to get screwed come tax time????


cliffs
bought house last year
want to move to a new city
have to sell house for a loss
options??

 

[Modeps]

Less than a year in a house doesnt look good. Is there anyway you can commute for a while?

 

[SpanishFry]

anyone you can rent it to for a while?

 

[Rallispec]

Originally posted by: SpanishFry
anyone you can rent it to for a while?

that is certainly an option - although I doubt that I can get enough in rent to make mortgage payments. however i'm sure i'd come close and it wouldn't be a big deal.



and commuting is out of the option --- we're talking 700 miles away.

 

[waggy]

wow. good post. one reason why interest only loans suck.


good luck!

 

[Rallispec]

on renting --- is this a good option?? will i still get to claim my mortgage payments as a tax deduction?

any clue how that effects my ability to get another mortgage for a house in the new area?

 

[Rallispec]

Originally posted by: waggy
wow. good post. one reason why interest only loans suck.


good luck!

yeah... live and learn I suppose.






I'd really like to know what the reprecutions are of selling the house for a loss, especially from a tax standpoint. What i'm finding in my searching is that losses are not deductible.

 

[imported_Shivetya]

Originally posted by: Rallispec

Originally posted by: SpanishFry
anyone you can rent it to for a while?

that is certainly an option - although I doubt that I can get enough in rent to make mortgage payments. however i'm sure i'd come close and it wouldn't be a big deal.



and commuting is out of the option --- we're talking 700 miles away.

renting is only an option if you can afford the mortgage payment without a renter.

 

[K1052]

Originally posted by: Rallispec
on renting --- is this a good option?? will i still get to claim my mortgage payments as a tax deduction?

any clue how that effects my ability to get another mortgage for a house in the new area?

the interest on mortgage payments for a rental property are deductible, IIRC

 

[dullard]

If you can't pay off the mortgage completely when you sell, the bank won't let you sell it. You will be stuck with the house until (a) you fork over the ~$15k+realtor fees or (b) foreclose on the house. That is the reason people suggest that you put down 20%, so you don't have this problem (plus other obvious reasons).

Many, many people would love mortgages that roll-over. The bank already trusted you with the loan and you'll still have a house to use as collateral. But as it is, don't expect this in your lifetime. That is, unless one bank became courageous enough to see this massive need and the tons customer's they'd get.

I don't think you'll get helped on taxes. Uncle Sam doesn't just give out donations to everyone who made a life-style choice. But you won't get screwed either.

 

[LegendKiller]

Personally, I'd pony up the cash and get rid of it. Then rent for the next year. Buying at a housing peak is not a good idea. If you buy at the new place you'll just be repeating your same mistake.

 

[tw1164]

I wouldn't rent out the house, how are you going to be able to maintain the property 700 miles away?

I don't think you'll have anything to worry about at tax time, you're not selling it for a gain.

 

[radioouman]

There are some first time home owner mortgages that are transferable, but I doubt that any interest-only loan would be.

 

[NoMoMoney]

Ditch the house and rent at your new place. If you can cover the loss and your new job pays that much more go for it. You won't get any tax break unless you have capital gains to offset. You can list yourself on MLS (flat fee to do it) to save 1/2 the commission and still reach most people. If you are looking at a quick sale though (or you need to start the new job by some date) then you are probably going to lose a little more since you are going to be dealing with fickle buyers that want the world from you for a huge discount. Do it soon, July and August are usually slower months compared to May/June.

Congrats on the job offer.

 

[xgsound]

Cliffs answer to the OP:
List/sell now while it's still selling season if you're going to.
Get as much as you can, list for 15,000 more than you paid (it's selling season and you can take less)
Sell/store some furniture to reduce clutter
Rent for 6 months/ a year in new city to recoup backup money with the higher pay.

Originally posted by: Rallispec
on renting --- is this a good option?? will i still get to claim my mortgage payments as a tax deduction?

any clue how that effects my ability to get another mortgage for a house in the new area?

Once the house is rented; all expences you pay such as interest, insurance, taxes, repairs, lawn care, and utilities are federally deductable due to the rental. Here's a recent rent thread with some general opinions. http://forums.anandtech.com/me...id=38&threadid=2052086 Since you haven't had the house for 1 year yet, I don't think this uses the Capital gain/loss formulas. I don't know how a loss would apply.

It's quick and free to check out craigs list, realtor.com, and the newspaper for current rental and housing values. That info should help guide your decision.


Jim

 

[Rallispec]

Originally posted by: tw1164
I wouldn't rent out the house, how are you going to be able to maintain the property 700 miles away?

I don't think you'll have anything to worry about at tax time, you're not selling it for a gain.

well i've got lots of family here who could check up on it -- and then maybe i could write off trips I take back home to visit them becuase i need to check on the property?


still though, i'd rather just get rid of it and not have to worry about it at all.

 

[waggy]

Originally posted by: tw1164
I wouldn't rent out the house, how are you going to be able to maintain the property 700 miles away?

I don't think you'll have anything to worry about at tax time, you're not selling it for a gain.

you can get a rental agency to take care of everything. of course they will get a cut.

 

[GasX]

You may find that renting it out and renting in your new location is your best bet - especially if you can get paid in cash. Even with negative cash flow, it wil take a while before you burn off the $15k+. You do maintain the risk associated with volatile real estate prices.

 

[kranky]

You could ask your new employer for relocation expenses and an additional amount to cover all or some portion of your loss, but whether it works will depend on how badly they want you.

It's possible that the bank would eat the loss, but very unlikely. That's typically only an option if they are going to foreclose (i.e. you've not been making payments). And even if they did, you get a 1099 for the amount of the loan they forgave, making that taxable income to you.

If you do rent, you should be able to deduct at least some of the cost of returning there to "check on your property". I have a friend (an accountant) who bought a cheap home to rent out when he moved away for precisely that reason.

A loss when selling your home is definitely not deductible.

 

[Mark R]

There shouldn't be a major problem selling at a loss, as long as you pay the mortgage in full. When it comes to sell, the mortgage company's lawyers will block the sale if there is a balance remaining on the loan.

Some mortgage companies are quite happy to move a loan onto a new property - this is something that you should ask your lender. Others will instead try to rape you for early repayment fees, arrangement fees, etc.

Perhaps one option is to lease out the house, and collect rent. However, you will probably need permission from your mortgage lender to do that (this may require an arrangement fee and switch to a higher interest rate loan). Don't forget there are agencies that will do all the grunt work - advertising, interviewing tenants, credit checks, collecting money, chasing up unpaid rent, maintenance - although they do take a cut.

I'm not sure about the tax issue, but I don't think you can make a deduction for a 'capital loss' - however, a capital loss may be used to cancel out a capital gain (of another asset) in the same year (or within a few years).

Alternatively, you just have to put up with it and commute.

This is a bit of a difficult issue - and requires proper advice. In the first instance you should discuss it with your mortgage lender, as they may be able to accomodate you within your current product. At any rate, it would be sensible to contact an independent financial advisor who can advise on risks and liabilities with the various options.

 

[FP]

Originally posted by: waggy
wow. good post. one reason why interest only loans suck.


good luck!

Umm, how would he be in a different spot with a P&I loan?

He actually saved money being in an IO loan for the first year.

 

[Slew Foot]

You can sell at a loss if you can convince your lender to do a short sale. This means that the lender will let the house sell for less than the amount owed on the loan, but they'll usually stick you with a 1099 for the difference.

You still get a mortgage tax deduction for a rental, but you also have income tax on your rental income as well.

 

[CPA]

You are NOT allowed to take the loss of the sale of your home in any fashion on your 1040. Sorry, you get absolutely no tax benefit from selling at a loss. You are NOT allowed to use it to offset capital gains. It is consider a personal loss.

 

[Rallispec]

Originally posted by: CPA
You are NOT allowed to take the loss of the sale of your home in any fashion on your 1040. Sorry, you get absolutely no tax benefit from selling at a loss.

I suppose I could punch in the numbers on turbotax and see what it comes back with -- my primary concern is will I take a tax hit from this, i'd rather not end up owing the IRS money next spring becuase of it. -- obviously being able to write it off would have been nice, but as you've stated - it ain't gonna happen.

 

[CPA]

Originally posted by: Rallispec

Originally posted by: CPA
You are NOT allowed to take the loss of the sale of your home in any fashion on your 1040. Sorry, you get absolutely no tax benefit from selling at a loss.

I suppose I could punch in the numbers on turbotax and see what it comes back with -- my primary concern is will I take a tax hit from this, i'd rather not end up owing the IRS money next spring becuase of it. -- obviously being able to write it off would have been nice, but as you've stated - it ain't gonna happen.

You won't owe taxes on any gain either, unless the gain is over $250K (filing single).