As the nation began its descent into the so-called fiscal cliff, Congress and President Obama were able to eke out a deal that includes provisions that relate to the residential real estate market putting it on more solid ground.
The legislation, known as H.R. 8, extended for one year the debt forgiveness for loan modifications, short sales, and foreclosures; extended the deduction for mortgage insurance premiums for those making less than $110K; and extended an up to $500 energy efficiency home improvement tax credit. This is in addition to $2,000 tax deduction on new homes built to meet specific energy conservation standards. The extension of the mortgage insurance premium deduction and the energy efficiency tax credits were also made retroactive to cover 2012.
The tax exclusion for capital gain on the sale of a primary residence up to $250K for single people and $500K for married couples remain in place.
Although this is good news, there are still issues to be dealt with. This is due to the fact that our elected representatives failed to address the automatic across-the-board federal spending cuts by extending them for two months and also failed to address the upcoming debt limit, we will likely find ourselves in another crisis soon and the elimination or partial elimination of the mortgage interest deduction may rear its head as part of those negotiations.
In August 2011 the failure of Congress to deal with the debt limit in a timely manner lead to a downgrade of the nation’s credit rating. If this were to happen there is a risk that it would affect interest rates on mortgages because Fannie Mae and Freddie Mac would be downgraded as well.
What is more, the fate of the mortgage interest deduction is still unknown as its elimination or partial elimination may become part of the negotiations to deal with sequestration and the debt ceiling two months from now.
If you are planning on buying or selling a home in the Pioneer Valley, make your first call to Michael Seward at 413-531-7129 or email me at firstname.lastname@example.org.
For more details regarding what was in the fiscal cliff deal, click here.