Mortgage Debt Forgiveness Act Extension Avoids Housing Tailspin - Temporarily

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Congress passed a bill on January 1 to protect homeowners and avoid the fiscal cliff, a housing tailspin, and passed the Mortgage Debt Foregiveness Act extension. Home Destination, a Minneapolis residential Realtor with RE/MAX Results comments on the bill and why it is a temporary fix.

Mortgage Debt Forgiveness Act Extended

Mortgage Debt Forgiveness Act Extended

"At one point they (sellers) considered going into foreclosure, instead. Our surveys tell us that if the principal is reduced by $100,000, it can save a homeowner from $15,000 to $35,000” on the phantom income under 2012 tax rates." ~ Don Faught

The Department of Defense's Jan 2 press release says that after hard concessions from both sides, Congress passed a bill on January 1 to protect homeowners and avoid the "fiscal cliff threats" included a provision that extends the Mortgage Forgiveness Debt Relief Act through 2013, according to the Department of Defense.

As proclaimed by the National Association of Realtors (NAR) protecting homeowner tax credits is critical to real estate interests and the recovering housing market. The new law applies to discharges of qualified principal home residence indebtedness on or after January 1, 2009, and before January 1, 2013, explains Home Destination's owner Jenna Thuening.

The debt relief act, scheduled to expire at the end of last year, waives forgiveness of mortgage debt from being counted as taxable income by the Internal Revenue Service.

"This homeowner tax extension will help struggling homeowners take full advantage of the help intended through the national mortgage settlement and other foreclosure relief programs. We need legislation that will ensure continued priority focus to help Minnesota's responsible homeowners who are seeking to pay their bills and stay in their homes," says Jenna Thuening, owner of Home Destination.

Congresswoman Diana DeGette says on her website: "It was far from the deal many of us hoped for, and certainly not the comprehensive solution we saw in this opportunity. However, with the economic recovery still fragile, we cannot let the perfect be the enemy of the good. We have a responsibility to the American people to do the right thing – and the right thing was to prevent everyone’s taxes from going up tomorrow or sending the financial markets into a tailspin".

The Department of Defense Jan 2 press release: The long hours put in by our legislators behind closed doors were evident on everyone's faces and in major report findings across the nation. Capitol Hill Blue expressed it as "a struggle that strained America’s divided government to the limit". It is only a temporary delay of debt and budget issues that parallel the tax cuts. “By making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher paychecks for American workers,” said Rep. Dave Camp of Michigan, chairman of the tax-writing House Ways and Means Committee.

Key points of the fiscal deal homeowners should know - drafted from information provided by NAR:

1) Income Tax Rates: Extends the historically established tax cuts on incomes up to $400,000 for individuals, $450,000 for married tax filers. Households earning higher amounts will be taxed at a rate of 39.6 percent, up from the current 35 percent. The Mortgage Debt Foreclosure Act Extension keeps caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000. Homeowner Bush tax cuts are saved in tact

2) Homeowners Estate Taxes: Estates will be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, similar estates had to pay a top rate of 35 percent.

3) Capital Gains & Dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families households filing taxes jointly will increase from 15 percent to 20 percent.

4) Alternative Minimum Tax: The deal for homeowners is that it permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from all of a sudden having to pay higher tax bills averaging near $3,000.

Home Destination, a Minneapolis Certified Distressed Property Expert and residential Realtor, helps homeowners determine when it makes sense to refinance, to understand their local housing market, use the Mortgage Debt Forgiveness Act if applicable and how to buy Minneapolis foreclosed homes. Contact Jenna at 612-396-7832.

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