Washington’s Unfinished Business Could Have Huge Impact on Housing Recovery

December 6, 2012 at 10:15 pm Leave a comment

by: Maria Hass –

The impending expiration of Mortgage Forgiveness Tax Relief remains unfinished business on Capitol Hill.
The National Association of Realtors is continuing its efforts to ensure an extension is passed beyond the current deadline of December 31, 2012. An extension would mean that homeowners who short sale their homes will be exempted from paying income tax on the balance between what they owe and what they sell the house for.

With the extension, a seller could save $25,000 on a $100,000 short sale, if they are in a 25 percent income tax bracket. That is obviously a significant savings. Restrictions apply to the exemption, so please consult your tax adviser. If an extension is NOT passed, short sales will become less attractive, probably resulting in more foreclosures and a slowdown in our housing recovery.

On another note, the President’s Deficit Reduction Commission has released preliminary recommendations to change how the country spends money and collects taxes. One of its provisions calls for dramatically limiting the Mortgage Interest Deduction (MID). Up until now, no decision has been reached on the changes to the MID, which is a tax incentive allowing homeowners to deduct the interest on their mortgage payment from their income taxes, based on their federal income bracket. This is a huge tax savings and a leading benefit to home ownership. The loss of MID would make taxes on home ownership very costly. It would also discourage homeowners from applying for home loans or keeping a loan, since there would be potentially no tax benefit.

Lawmakers continue to spend more than what they earn. Now, they are looking to get money from homeowners by taking away the tax benefit that attracted homebuyers to purchase homes in the first place. The National Association of Realtors (NAR) has issued a call to action for Realtors to let their Congressional representatives know that a change in MID would be extremely detrimental to the recovery of the housing industry.

Entry filed under: Arizona Real Estate, Chandler Real Estate, Foreclosures & Short Sales, Phoenix Real Estate. Tags: , , , , .

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