The months of fiscal cliff debates have finally culminated with a deal between House Republicans and the Democratically-controlled Senate on New Year’s Day. With the fiscal cliff averted, the mortgage industry looks to be safe with extensions to key tax provisions for homeowners.
The deal’s specifics include extensions of both the Mortgage Debt Forgiveness Relief Act and the Mortgage Interest Deduction for one year. With the extensions of both bills, the housing market finds increased stabilization as it continues showing signs of improvement.
Set to expire at the very start of 2013, The Mortgage Debt Forgiveness Relief Act of 2007 allows homeowners to receive debt reduction through mortgage principal forgiveness, including exemption from paying income taxes on the amount of mortgage debt forgiven.
In the months preceding the fiscal deal, industry members feared a cancellation of the act would force more distressed borrowers to choose foreclosure over short sales, thus increasing supply in the market.
Also going untouched by Congress was the Mortgage Interest Deduction, a tax relief that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements on their residences.
One of the oldest tax breaks designed to encourage homeownership, the interest deduction was vigorously fought for by lobbyists like the National Association of Realtors, who gathered millions of dollars in their efforts to retain the bill in November.
The fiscal cliff agreement also implemented changes to long-term care services with the repealing of the Community Living Assistance Services and Supports (CLASS) Act and establishment of a national commission to further enhance the long-term care system.
Among other key points of the fiscal deal that will raise taxes by $600 billion over the next decade include cuts to defense, social security payroll, Medicare reimbursement to doctors, income taxes, unemployment benefits and changes to the alternative minimum tax.
Written by Jason Oliva