In recent weeks, you couldn’t turn on a TV or tune in a radio without hearing about the impending “fiscal cliff.” But now that lawmakers finally resolved the issue, it’s important to understand what the future has in store for homeowners.
The fiscal cliff was a series of automatic tax hikes and spending cuts set to take effect at the beginning of 2013. One was the Mortgage Forgiveness Debt Relief Act of 2007.
What is the Mortgage Forgiveness Debt Relief Act?
This tax provision was established under the Bush administration and involves homeowners on the verge of foreclosure or partaking in a short sale.
If this individual receives debt forgiveness, this would have been counted toward their taxable income. However, under the tax break, up to $2 million may be forgiven from their taxable income. The Mortgage Forgiveness Debt Relief Act was scheduled to expire on December 31, 2012, but will remain in effect until the end of 2013.
Numerous mortgage and real estate experts feared the elimination of this tax break would make short sales and foreclosure alternatives less accessible to distressed borrowers. In turn, this could have damaged the housing market’s recovery.
Deductible mortgage interest back in action
At the end of 2011, a tax break for homebuyers earning less than $100,000 per year expired. However, under the fiscal cliff deal, it was retroactively extended into 2012 and will stretch to 2013.
Under this provision, borrowers in this income bracket can list their mortgage interest payment as an itemized deduction. This provides a major incentive to make the transition to homeownership and makes the transaction much more affordable.
Borrowers who utilize FHA mortgages and loans from the Department of Veterans Affairs especially benefit from the revived tax break.
Green home improvement tax break
Current homeowners thinking of making their property a little more eco-friendly may want to undertake certain projects this year. Under the agreement, households that made green upgrades in 2012 or plan to do so in 2013 can receive a $500 tax credit. An exact list of the qualifying projects can be found on the Department of Energy’s website.
Qualifying for a home loan is a major step in your personal finances. Freedom Mortgage is here to keep you up-to-date on the latest tips and tricks of the mortgage industry whether you’re looking to improve your home value or simply make a mortgage rate comparison.
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