Last Thursday’s Los Angeles Times business section article started out:

“Real estate website Zillow has a provocative data point for every renter thinking about buying these days: That move pays off after just three years on average nationwide.”

The Times said that it’s 3.2 years for us in Ventura County.

That’s another sign or reason why so many investors are snapping up real estate today.

Leslie and I spent the day yesterday attending a continuing education class that focused on short sales, and were reminded that a major federal law is expiring at the end of the year that affects homeowners facing financial distress.

This temporary law (Mortgage Debt Relief Act of 2007) was meant to provide relief to homeowners who were foreclosed upon, or more commonly today, chose to do a short sale.

When debt is forgiven, that forgiven debt is counted as income and is generally taxable. So in layman’s terms, a homeowner who has a $500,000 mortgage but sells his home in a short sale, and his lender gets $400,000 (vice the $500k), that homeowner in the eyes of the IRS received a $100,000 gift which is taxable income. But the Mortgage Debt Relief Act waived that rule for homeowners who’ve suffered financial hardship in this economic downturn and been forced to do a short sale (or foreclosure).

But in less than 5 months, unless Congress acts, homeowners in financial distress will lose that IRS benefit.

With many short sales taking 5 months or longer to close, a lot of homeowners are going to be in for a big shock in January when presented with a huge 1099 and potentially no more relief from the IRS. Read the rest of this article »