Homeowner Tax Breaks Survive Fiscal Cliff – Good Afternoon. I wanted to follow up with an outline as to what, more so how the Mortgage Interest Deduction is critical piece to the homeownership puzzle. Several of my past and present clients have been asking if the (MID) was preserved through the Fiscal Cliff Negotiations. The good news is that it was.
Here is a brief rundown on what it is and why it’s so important to homeowners.
The mortgage interest deduction allows homeowners to deduct the interest on both their primary homes and an additional residence which can include a vacation home, RV or even a boat. Deductions are also available for interest on home equity loans and the deduction extends to premiums on private mortgage insurance (PMI).
There are limitations however on these deductions. According to the IRS, single taxpayers can deduct the interest on the first $500,000 of first mortgage debt and joint filers the first $1 million. Home equity deductions are limited to interest on loans of $50,000 and $100,000 for single and joint filers. The deduction for PMI is available to taxpayers with adjusted gross incomes under $100,000.
The mortgage interest deduction is thought to cost the Treasury between $70 and $100 billion per year. Most tax experts that I know, say that a very select few eligible homeowners actually take advantage of them. Both during the Fiscal Cliff negotiations and the presidential election various suggestions were made for limiting the deduction. Some suggestions were based on reducing the eligibility criteria either by homeowner income or the size of the loan. A variation of the two would put a cap on the amount taxpayers could deduct across the board for expenses. These items of course included the Mortgage interest deduction, as well as child care and state/local taxes. The NAR as well as CAR and several other Housing groups fought hard for retention of the mortgage interest deduction saying “it was essential to the recovery of the housing market”. In the end Congress did not touch any of these deductions.
The second housing related tax break preserved in the midnight negotiations was a prohibition on taxing forgiven debt. This was a temporary provision enacted several years ago in response to the on-going foreclosure epidemic and was due to expire on December 31, 2012. Under previous tax rules creditors were required to report forgiven debt to the IRS. This was shown typically by a homeowner receiving a 1099 from the mortgage servicer. This would include the unpaid mortgage balance when a short sale is approved or any deficiency resulting from a foreclosure sale. The debt would then be taxable as ordinary income which critics claim discourages homeowners from considering short sale. Short selling a property by far is the best option to resolve a property that is worth less than what is owed.
If you or anyone you may know is considering short selling a property, then a call to my office is essential. Short selling your home isn’t just a matter of listing it for sale and crossing your fingers. These days it’s imperative that you hire the best agent who has a proven track record of successful closings. Moser Realty Group has closed over 200 short sales in the past 5 years. Our office is a Platinum Certified agency with Bank of America. We also have direct agency agreements with GMAC, Chase, Wells Fargo and SunTrust. If you are in foreclosure or have been considering short selling your home, we can help.
Call my office today for a free, no obligation short sale consultation.