Apple 2-4 Unit Closings Continue Upward (but not for Victorville & Hesperia)
Victorville & Hesperia closing volume has been dropping since the 2nd quarter although average prices per unit did rise in both municipalities.

Apple Valley has the largest data sample. Sales settled at an average price of $38,736 per unit. Most sales fall around $20,000 per bedroom. Go to our web site for more detailed trends based on floor area and bedroom count.

Based on Gross Sales Volume / Total Units Sold, 4th quarter prices were up from the previous quarter.

Want to pick Bill’s brain? Contact him at Bill@WiestRealty.com

How Bad was 2009 for 5+ Unit Projects?
Sales volume was horrible..................

and price levels were worse..................

Multipliers remain low due to high vacancy & credit loss, poor economic conditions, a lack of conventional lenders, and competition from 2 -4 unit projects with similar prices per unit.

Unemployment Eases But ...

Unemployment generally continued falling from July/August highs but not enough to make a difference in this market. These figures are not seasonally adjusted and the December rate was preliminary as of the printing of this newsletter.

Here Comes 1099-C Tax Consequences of Foreclosure and Short Sale Debt Forgiveness
By Tim Devine, CPA
Marks & Devine

Lending institutions will file a record amount of 1099-C’s in 2009. If you let a property go (short sale, foreclosure or abandonment) in 2009 and the debt was not fully satisfied
the lender will be sending you a 1099-C “Cancellation of Debt” A 1099 will be issued regardless of whether or not the banks have the current address of the owner. In many cases the owner will not know a 1099-C had been issued until after their taxes have been filed and they receive a deficiency notice or even worse, they are audited by the IRS.

The rules addressing the treatment of a1099-C for taxes are complex. The IRS recently released publication 4681 a guide to cancelled debts, foreclosures, repossessions and abandonments. This article will provide you with a brief overview of how to deal with the salt (1099-C) being poured into the wound. (Foreclosures)

The most important step is to determine if the loan is nonrecourse or recourse. Various states have different rules concerning the recourse of loans. Each state and loan should be analyzed to determine the status of the loan. The following discussion relates to the treatment of a 1099-C received for investment properties and second homes. The rules on primary residences are different and will not be discussed in this article. Non-recourse loans are fairly simple to deal with. The property is treated as being sold for the full amount of the loan balance at the time of disposition. The loan balance will most likely include interest and penalties. When the loan balance is higher than your adjusted tax basis you will have a long term capital gain (subject to recapture) to present on your tax return. When the tax basis is higher than the loan amount you will incur a loss. The loss can be non-deductible (second home) a capital loss (undeveloped land) or an ordinary loss (rental property).

Cancellation of debt for a recourse loan is treated differently. When the loan balance is higher than the FMV of the property there is a two step process to calculating the proper treatment. The excess of the loan balance over the fair market value of the property is ordinary income from the cancellation of debt.

The property is than treated as being sold at the fair market value. The owner will then either have a gain or loss on the disposition of the property. See the following IRS approved worksheet where the taxpayer paid $100K for the property and claimed 25K in depreciation over the years to arrive at an adjusted tax basis of $75K.

The above taxpayer has ordinary income from the cancellation of debt for $75,000. This income is fully
taxable unless the taxpayer can use one of the following exclusions:
1) The taxpayer is filing for bankruptcy
2 )The taxpayer is insolvent
3) The debt is farm Indebtedness
4) The debt is qualified real property business Indebtedness

The second step is to report the gain or loss on the remainder of the debt being forgiven. The above example shows a long term gain of $50,000. Qualified Real Property Business Indebtedness is debt assumed to acquire, construct or improve real property. Debt from a refinance up to the amount of the original loan is excludable. Any proceeds in excess of the original debt will NOT be excludable.

Marks & Devine is a CPA firm that has been counseling and assisting taxpayers in the decision making process and tax planning for the disposition of real estate for years. Feel free to call Tim Devine with your tax questions at (818) 591-7560.