Mortgages and the Fiscal Cliff: What You Need to Know

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The Eleventh Hour save passed by Congress to avoid sending the nation over the fiscal cliff included several important extensions regarding mortgages and the housing market. The end result is good news for buyers and sellers alike, including those opting for short sales.

Chief among these is the extension of the Mortgage Forgiveness Debt Relief Act of 2007. This key provision allowed homeowners who obtained debt forgiveness via short sales or principal reductions to be exempt of taxes on the forgiven amount. Originally set to expire on December 31st, the act has now been extended for a full year to January 1st, 2014.

In addition, the American Taxpayer Relief Act of 2012 looks to continue to allow homeowners to deduct their mortgage insurance premiums from their federal tax returns. This extends a very popular law that gave a 100% deduction of the mortgage insurance premium to families with incomes less than $100,000 a year. Some borrowers who make above $100,000 a year can also take advantage of the act, though to less than the full 100% deduction.

Finally, while higher income individuals who earn above $400,000 will see their capital gains tax rate increase to a total of 20%, only gains of more than $250,000 for individuals, or $500,000 for households, will be taxed the full 20%. This will help to temper the effect of the new law on home sales.

Overall, while many compromises and concessions were a part of the negotiations in Congress over the week, it looks like the housing industry got exactly what it needed out of the deal to continue its recovery into a prosperous year in 2013.

Comments (1)

Marilyn Wier
RE/MAX Space Center - League City, TX
Your League City & Surrounding Areas REALTOR!

I hope as we all do that the housing market will continue to climb up. Great blog and thanks for the information!

Jan 03, 2013 01:55 AM