The National Association of REALTORS® has been reporting for some time that Congress has been focused on comprehensive tax reform versus extending individual expiring tax provisions. Here is a story from the Washington Post with good news about renewing some of these important expiring provisions:
Here’s some good news for homeowners worried that Congress will fail again to renew popular tax benefits — especially those allowing for mortgage debt forgiveness, write-offs for energy-saving improvements and mortgage insurance premiums.
Though there has been no formal announcement, the Senate Finance Committee under its new chairman, Ron Wyden (D-Ore.), expects to take up a so-called “extenders” package sometime this spring. “This is high on [Wyden’s] priority list,” according to a source with direct knowledge of the committee’s plans. That’s an important change from December, when then-Chairman Max Baucus (D-Mont.), who is now the U.S. ambassador to China, let more than 50 corporate and individual tax benefits expire. The House also took no action to extend.
As a result, several key housing provisions in the tax code lapsed into a legislative coma. Without reauthorization retroactive to Jan. 1, they could disappear and not be available for transactions this year. Both Baucus and House Ways and Means Committee Chairman Dave Camp (R-Mich.) focused on wholesale rewrites of the tax code last year rather than on extending special-interest tax provisions.
But now there are signs that at least some of the expired housing benefits could be back on Congress’s to-do list.
Tops on the list is the Mortgage Forgiveness Debt Relief Act, a law that has saved large numbers of homeowners — close to 100,000 taxpayers in 2011, the latest year for which IRS estimates are available — from hefty tax bills.
First enacted in 2007 with menacing clouds of the housing bust on the horizon, the law carved out a special exception to the general rule that when you are relieved of a debt burden by a creditor, the amount forgiven is treated as income subject to taxation at ordinary rates.
For qualified homeowners whose mortgage debt was reduced or written off by lenders in connection with loan modifications and short sales, the relief act said the forgiven amounts would not be taxable. However, the carve-out for mortgages was temporary. Congress was required to extend it periodically — which it failed to do last Dec. 31. (At least one state has a partial remedy for congressional inaction, however: California owners who sell homes through short sales are not subject to taxation on the amounts forgiven, a legal interpretation confirmed by the IRS.)
Also among the housing benefits that Congress failed to extend last December: a $2,000 tax credit for construction of energy-efficient new homes, deductions for home improvements that conserve energy and write-offs for the mortgage insurance premiums that many borrowers pay in connection with low-down-payment loans.
Though Wyden is planning to take up an extenders bill soon, that does not guarantee that any particular provision will be part of the bill the Finance Committee ultimately considers. The panel has asked members to suggest what they think should be part of a final package, which may or may not include all the housing-related provisions.
But bipartisan support for mortgage debt forgiveness renewal is strong. Sens. Debbie Stabenow (D-Mich.) and Dean Heller (R-Nev.) are pushing an extension through 2015. Most tax analysts expect that a final bill will include some form of renewal.
The home energy conservation tax programs also are likely to be included in the Senate bill, in part because Wyden has supported them in the past and recently served as chairman of the Energy and Natural Resources Committee.
Meanwhile in the House, Camp has not indicated when he plans to take up the extenders. He recently unveiled a comprehensive tax reform plan that would lower tax brackets, increase standard deductions and eliminate or sharply curtail most longtime housing tax benefits, including mortgage interest and property tax write-offs. Camp’s bill did not mention reauthorization of the now-expired housing extender items, but he asked colleagues for their views on what might be retained in a large bill.
If, as expected, the Senate Finance Committee approves and the full Senate passes an extender package — including two or three of the housing provisions — election-year pressure on Camp to pass some version will be intense, despite his preference for comprehensive tax reform, which has no chance of passage in 2014.
Bottom line: Though there are hurdles ahead, the outlook for renewal of mortgage forgiveness debt relief — and possibly other housing benefits — looks more promising now than it has in months.