In the weeks coming up to the Fiscal Cliff, there was a lot of uncertainty in the real estate market. For example, would the Mortgage Interest Deduction (MID) be preserved? Would short sales result in higher taxes for those who sell? Once the dust settled and the deal was done, the results were generally positive for homeowners. Here are some of the highlights:
Mortgage Interest Deduction (MID) – Generally remains intact for most homeowners, which means that mortgage interest can be deducted from your taxes.
Short Sales – The Mortgage Debt Tax Relief Act is extended through the end of 2013, which means that any amount that is forgiven by the bank for a primary residence is not considered taxable income (it would have been otherwise).
Mortgage Insurance – Mortgage insurance (PMI) is tax deductible through the end of 2013. Essentially, in the same way you can deduct mortgage interest, you can also deduct PMI.
These changes will help to facilitate the purchase and ownership of homes for the coming year (though as usual, be sure to check with your accountant on your individual situation).
One area that is a bit more challenging for home owners is the increase in payroll tax (or the end of the tax holiday, depending on how you view it). Essentially, people will be seeing less money in their paychecks. For example, someone making $50,000 a year will see about $1000 a year less in their pocket. While this does not affect buying power in the eyes of the bank, it may cause homebuyers to reconsider what their monthly budget may look like for the purchase of a home.
In the end, there are many reasons to be positive about what has emerged. While questions still remain for 2013, there is reason for optimism in the months to come.