When lawmakers dodged the “fiscal cliff” last week, they also decided to extend the tax break for forgiven mortgage debt that was set to expire on Dec. 31, 2012. The Mortgage Forgiveness Debt Relief Act of 2007 has been especially important with the current glut of short sales and foreclosures, and it’s truly a “relief” that it has been extended until the end of 2013.
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on Dec. 20, 2007. The Act protects homeowners from paying income taxes on the deficiency difference between what they sell their home for and what they owe. Whether the home is sold in a short sale or foreclosed upon by their lender, these distressed homeowners are protected by the Debt Relief Act of 2007.
One out of every four real estate transactions involves a property that is “underwater” or “distressed”. These homeowners have been foreclosed on or are selling their homes as a short sale. In most cases, there’s a large difference between the current value/sale price and what they actually owe.
Many homeowners rushed to complete short sales before the end of the year out of fear that the tax break would not be extended. It’s good news for the real estate industry as a whole that lawmakers made the right choice!
The fiscal cliff deal also brought the deduction for PMI (Private Mortgage Insurance Premium) as well as FHA’s MIP back from the dead. This deduction for mortgage insurance had originally expired at the end of 2011, but the new fiscal cliff deal at the end of 2012 revived it for all of 2012 and 2013!
Borrowers can deduct the amount they pay for private mortgage insurance, which is charged on all conventional loans with less than a 20% down payment. Consumers should provide their tax preparer with a copy of their HUD-1 Settlement closing statement to ensure they get credit for any mortgage insurance they paid in 2012.
Tags: atlanta, atlanta real estate, Better Homes and Gardens Real Estate Metro Brokers, FHA, fiscal cliff, Foreclosures, georgia, Judy Jones, Metro Brokers, Metro Brokers Financial, MIP, mortgage, Mortgage Forgiveness Debt Relief Act of 2007, mortgage insurance premium, PMI, private mortgage insurance premium, Real Estate, short sales, taxes