Provisions in the New Expire Act That May Impact Homeowners

When Ronald Regan revamped the tax code and signed the reform bill in 1986 there were only 14 provisions that had expiration dates. Today that number has grown to 55. These expirations create uncertainly from year to year as to what is tax deductible and what is not. At the end of 2013 55 provisions expired leaving many popular tax breaks in the balance.

Wyden, chairman of the finance committee, has vowed that this will be the last extension which will be good until December 31, 2015. At that time they will expire forever if they have not been made permanent deductions or credits prior to the expiration.

The three major extensions that impact the housing market include the tax on mortgage forgiveness, the energy efficient home improvement tax credit and mortgage insurance premium deductions. Without a new bill signed into law and retroactive back to January 31, 2014, these tax breaks are no longer available to homeowners and homebuyers.

The first extension involves the Mortgage Forgiveness Debt Relief Act. Before 2007, if a homeowner had a loan modification, foreclosure or short sale, the amount of forgiven debt was taxable as ordinary income. This is taxed at the highest rate and meant that homeowners who lost their homes were then left with a large tax bill. The Mortgage Forgiveness Debt Relief Act exempted properties from the tax. Without an extension or a permanent tax break, any short sales and loan modifications that results in loan forgiveness in 2014, will again be subject to taxation.

The second extension that expired and is considered for renewal is the energy tax credit. For the last several years homeowners who either built energy efficient homes or made energy efficient home improvements were rewarded with tax credits. Over the years the credit has been reduced but the incentives has been a part of the tax code. These tax credits have helped to boost the sale of energy efficient products including HVAC units, windows and doors, insulation and appliances. Not only has this helped move the “green” industry forward but also has provided greater efficiency which helps reduce energy usage and improve air and water quality.

The third extension that directly relates to the mortgage industry is the mortgage insurance premium deduction. This impacts many home buyers who purchase homes with less than 20% down. Up until now these premiums have been deductible on the homeowner’s taxes. Without an extension, this very popular tax break will permanently expire.

Wyden has indicated that providing an extension of these benefits is a priority. He also made it clear that the intent of the finance committee is that this will be the last extension offered. They will then become permanent deductions or they will permanently expire. It will be important to watch the Expire Act as it will impact millions of homeowners as it relates to the tax benefits of home ownership.

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