Although tax issues should not be a primary driver of your decision to buy or sell, they can have a significant impact on your finances long term. It is important to be working with a lender who is staying abreast of all the current changes so that you can take advantage of all the options available. Thanks for the information John!
Tax Changes that could affect Homeowners and Buyers
I know I know, it's the holiday season. Why ruin it with talk about taxes? Well, a couple provisions in the tax code are expected to expire at the end of 2013, and one of them could affect which mortgage option is right for you or your clients in the future.
Typically, when a home is sold through short sale or foreclosure, any leftover debt forgiven by the lender (aka, put in the books as a loss for them) is usually taxable under the US tax code. In response to the recession and coinciding housing crisis, congress passed an act that forgave this tax liability (Up to $2 million) for the year 2012. Since the crisis didn't subside as quickly as they first anticipated, the act was extended thru 2013 but has yet to be renewed for 2014.
Hopefully the act will be extended thru 2014 to help with the steady stream of short sales and REO sales still taking place, but if you're close to the finish line on a short sale, it's a good idea to try to squeeze it in prior to the end of the year. Better to be safe than sorry if the act is not extended.
This is one tax that I just don't understand (ok...there are A LOT of taxes I don't get) when it comes to mortgage debt. A homeowner is already in a bad way when they've lossed equity or have gone through a financial hardship tough enough to lead to foreclosure - why kick someone when they're down?
Mortgage Insurance Deductions
This one could have an affect on home buyers and anyone considering different loan options. As if home buyers needed another incentive to lean toward conventional financing, there has not yet been a provision to extend the deductibility of PMI. In 2012 & 2013, PMI was deductible, but that deduction is set to expire at the end of 2013.
Why is this a big deal?
Well for one, PMI premiums on the FHA loan program have skyrocketed in recent years. Having that PMI deduction at least made the payments palatable. Since HUD decided to extend PMI payments thru the life of the loan (aka, 30 years, 360 payments) for their most commonly used product, it now means that home buyers without a siginificant down payment will be paying a large monthly PMI payment for a long time, with no benefit of tax deductions. OUCH.
This is another head scratcher, as the FHA program is designed to help low- to mid-income underserved families. Is that the group you really want to hit with a heavier tax burden?
This is yet another reason people should do their best to keep their credit in good standing & save up at least a 5% down payment - compared to FHA, conventional loans are looking better & better. Of course, there's still PMI on conventional loans with less than 20% down, but it's usually cheaper, and can be cancelled once the home accrues some equity.
And now for Springers final thought - I'm not a tax expert, so please consult one if you have any questions. If you need help finding a great tax expert in PA, DE, or NJ, that is something I can help with.
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