Fiscal Cliff Deal Extends and Brings Back Popular Mortgage Tax Breaks

Much to the relief of the mortgage industry, the fiscal cliff deal, passed on January 1st, extended the Mortgage Forgiveness Debt Relief Act of 2007 and reinstated the American Taxpayer Relief Act which expired at the end of 2011. The two popular acts are creating more confidence for continued improvement in the housing market. The American Taxpayer Relief Act allows for the 100% deduction of annual mortgage insurance premiums for borrowers that have an adjusted gross income of less than $100,000 per year. Certain people with AGIs above $100,000 may also benefit on a sliding scale. The Mortgage Forgiveness Debt Relief Act exempts homeowners who experience a debt reduction through mortgage principal forgiveness or a short sale from being taxed on the forgiven amount on loan balances of up to $2 million, or $1 million for a married tax filer with a separate return. The expiration of the Mortgage Forgiveness Debt Relief Act could have pushed many homeowners into foreclosing on their property instead of short selling or loan modifying because of the tax bill they would have been stuck with afterward. Around a third of San Diego property listings are still short sales so the act will, hopefully, keep home prices steady.