The year is about to end and it’s a good time to plan the financials for next year. One major concern that some of you may be facing is regarding the mortgage tax relief. Let us rewind to 2007 when the Mortgage Relief Tax Exemption law was first passed to help struggling homeowners cope with two things: the slacking housing market and the Internal Revenue Service. Now that it is nearing its expiration, it might force more people to continue living in homes that are worth much less than their mortgages. This will in turn slow the already snail-paced market recovery.
Beginning with the first day of the New Year, people who have lost their homes to foreclosures and short sales will be required to pay federal taxes on any amount the bank cannot recoup. The same rule will apply to homeowners whose loan principal has been reduced with the help of mortgage modifications; the IRS will see the reduced loan as taxable income.
There are some organizations that are working towards getting an extension of this law, among them is the National Association of Realtors. Jamie Gregory, the deputy chief lobbyist for the organization says, “I’m optimistic in the sense that everyone agrees on the merits of the issue and that it’s good for the market. My only caution is the process.”
There has been an estimated tax savings of at least $1 billion for borrowers, in 2011.
Keeping that amount in mind, it is clear that no tax exemption will only mean more money for the government and terrible repercussions for those who are already under water. This of course is not what a slowly recovering economy needs at this point.
The only glimmer of hope lies with the newly elected congress, but we ask our readers to prepare for the worst and start preparing for a strong landfall.