Great news for primary Daytona Beach area homeowners seeking a short sale in 2013 as the Mortgage Forgiveness Debt Relief Act has been extended by Congress. The extension means primary homeowners will still be excused from paying taxes on forgiven mortgage debt through 2013. The law, established in 2007, was set to expire Dec. 31. Since the MFDRA was established, countless homeowners have received tax relief from the debt forgiven at completion of a short sale. Short sales continue to derive over 20% of residential sales during recent quarters. This extension is big news for primary homeowners burdened by unmanageable mortgages. Without an extension, homeowners who completed short sales or mortgage modifications may have faced tax bills in the tens of thousands of dollars. Some industry officials feared that would hurt the housing recovery. The Act is now set to expire January 1, 2014. For more information, visit IRS.
Additional information included below from the Florida Association Of Realtors.
Yesterday, the House and Senate passed H.R. 8, legislation to avert the so-called "fiscal cliff." Following are real estate-related provisions of the bill, which President Obama plans to sign into law today:
Mortgage Forgiveness Debt Relief Act extended to January 1, 2014. In place since 2007, the act provided a tax break for homeowners who struggled through financial hardship such as a foreclosure, and were granted mortgage debt forgiveness. In the past several months, National Association of Realtors (NAR) issued numerous calls to action urging its million-plus Realtor members to ask lawmakers to extend the tax break for another year. More than a quarter of all transactions involve distressed properties, the NAR said in its plea. "Homeowners shouldn't be forced to pay a tax on money they've already lost with cash they never received."
Deduction for mortgage insurance premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012.
The 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
The 10 percent tax credit (up to $500) for homeowners for energy efficiency improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
"Pease limitations" that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high-income filers. "Pease" limitations will only apply to individuals earning more than $250,000 and joint filers earning more than $300,000. The thresholds are indexed for inflation so will rise over time. Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20% reduction. First enacted in 1990 and named for Ohio Congressman Don Pease, who proposed the idea, the limitations continued throughout the Clinton years. The limitations were gradually phased out starting in 2003 and eliminated in 2010. Reinstitution of these limits has far less impact on the mortgage interest deduction than a hard dollar deduction cap, percentage deduction cap or reduction of the amount of mortgage interest deduction that can be claimed.
The capital gains rate remains at 15 percent for individuals earning less than $400,000 per year and couples earning less than $450,000. Any gains above these amounts will be taxed at 20 percent. The $250,000/$500,000 exclusion for the sale of principle residence remains.