Congress was able to reach an agreement on January 1 that preserved the Bush-era tax cuts for more than 90 percent of Americans
Chicago, IL (PRWEB) January 18, 2013
The Federal Savings Bank finds that Americans are relieved now that the fiscal cliff has been avoided. Government officials recently reached an agreement to avoid the expiration of tax cuts that would've affected millions of Americans, but many are worried that uncertainty with the economy still remains.
The term fiscal cliff refers to the tax increases and automatic spending cuts (sequestration) that would have kicked in at the start of the new year. The research indicated that the tax increases would have stemmed from the expiration of the 2010 Tax Relief Act, while the spending cuts would have been the result of the Budget Control Act of 2011; a measure to reduce the country's deficit, and as a result American are experiencing a sense of relief.
Congress was able to reach an agreement on January 1 that preserved the Bush-era tax cuts for more than 90 percent of Americans, while allowing the tax rates to expire for individuals who earn more than $400,000 a year, and couples who earn more than $450,000.
Boost for housing market
The resolution reached on the fiscal cliff is having a positive impact on the economy as a whole, but especially for the recovering housing market. Now that Americans know what their tax rates will be for the near future, they can return to their homebuying plans. This confidence is expected to fuel an already growing housing sector, which has seen foreclosures decrease and home values rise during the past 12 months.
"An extension of the tax break is positive for home values by reducing the number of foreclosures and helping more troubled borrowers stay in their homes," wrote Jaret Seiberg of Guggenheim Partners. "That means less supply on the market."
Tax breaks on forgiven debt extended
Many homeowners will be pleased to know that the tax breaks on forgiven debt during foreclosure will be extended for 2013. The tax reprieve first stemmed from the Mortgage Forgiveness Debt Relief Act of 2007, and was extended for another three years through 2012 after the passage of the Emergency Economic Stabilization Act of 2008. By extending this benefit for another year, homeowners who are considering a short sale can still sell their homes for less than the amount remaining on their mortgage and not face a potential tax bill on the difference.
While many Americans are more comfortable knowing that the fiscal cliff has been avoided, others are still cautious because of another issue that could cause chaos around the country. According to analysis by the Bipartisan Policy Center, the debt ceiling is likely to be reached between February 15 and March 1. This occurs when the Treasury Department is unable to pay off debts and the country starts to default on its financial obligations. If government officials aren't able to reach a deal to increase the debt ceiling soon, it could cause the housing market to crash by driving up interest rates for home loans, possibly resulting in trouble for first-time homebuyers.