The signed off Fiscal Cliff provisions are good news for real estate. Specifically the Mortgage Debt Relief Act of 2007 has been extended. If it wasn’t extended, it would have effected all homeowners who will be involved in a short sale transaction, or having a loan modification resulting in a principle reduction. Just think – without this tax exemption the seller would be exposed to a 1099 for the full amount the bank / investor is “writing off” and could be forced to pay up to 35% of such amount. This would have forced more homeowners into a bankruptcy or foreclosure mode.
Also the mortgage interest deduction hasn’t been changed (yet).
Now we have to keep our eyes on new Dodd Frank regulations (applicable to mortgage qualifications), FHA guideline changes, Proposition 13 changes, local real estate inventory, and interest rates (poised to go up).
To be continued… Meanwhile here’s an overview of the tax provisions.
Individual Tax Extenders:
- Mortgage Debt Relief: Allow up to $2 million of mortgage debt cancelled or forgiven to be excluded from the homeowner’s taxable income through tax year 2013 IRS code
- Extension of Mortgage Insurance Premiums Treated as Qualified Residence Interest: Extends the ability to deduct the cost of mortgage insurance on a qualified personal residence through 2013.
- Rules for Contributions of Capital Gain Real Property Made for Conservation Purposes: Extends for two years the increased contribution limits and carry forward period for contributions of appreciated real property for conservation purposes.
Business Tax Extenders: The measure extends a number of business credits retroactively for 2012 and through 2013 including:
- 9% Credit Rate Freeze for Low-Income Housing Tax Credit Program:
- The LIHTC provides a tax credit over ten years after a housing facility is placed in service. The credit is determined based on the federal cost of borrowing. As borrowing costs declined, so has the amount of credits that can be used to build a LIHTC project.
- In 2008, Congress adjusted the formula and set a minimum credit amount of 9%. This bill extends this rate for projects that receive an allocation before January 1, 2014
- Treatment of Military Basic Housing Allowances Under Low-Income Housing Credit: Extends a provision whereby a military service member’s basic housing allowance is not considered income when calculating whether they qualify as a low-income tenant for the LIHTC program.
Energy Tax Extenders: The measure extends a number of energy tax credits retroactively for 2012 and through 2013 including:
- Credit for Energy Efficient Improvements to Existing Homes
- Credit for the Construction of Energy-Efficient New Homes: Extends credit for new homes that achieve a 30 or 50% reduction in heating and cooling energy consumption.
Multi Real Estate Services, Inc
Gov’t Affairs Chair – California Association of Mortgage Professionals