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Though the news spotlight has been on the presidential debates and the Nov. 6 elections, a more pressing personal issue for large numbers of homeowners across the country involves the lame-duck congressional session scheduled to begin Nov. 13.
Along with the federal budget, billions in tax increases, draconian spending cuts and efforts to avoid the “fiscal cliff” looming Dec. 31, the lame-duck session is expected to answer what’s estimated to be a multibillion-dollar question for housing: Will Congress renew the mortgage debt forgiveness tax provisions for owners whose mortgage lenders agree to write off portions of their debt, either as part of loan modifications, foreclosures, short sales or deeds-in-lieu of foreclosure? Without an extension, borrowers who receive reductions in principal next year would be hit with federal income taxes at their regular marginal rates on the amounts forgiven.
The lame-duck session also will have to deal with a slew of other real estate-related issues including write-offs for mortgage insurance premiums, tax benefits for homeowners who install energy-saving improvements, tax credits for builders of energy-efficient new houses, and extension of current relief for middle-income taxpayers from the alternative minimum tax (AMT), among others.
While President Barack Obama, Republican challenger Mitt Romney and most members of Congress have been campaigning, staffs of key House and Senate tax and finance committees – along with hordes of lobbyists – have been working out game plans for the lame-duck session. One key piece of strategy: Could the Family and Business Tax Cut Certainty Act of 2012 – which passed the Senate Finance Committee in August and includes mortgage forgiveness relief and other housing-related tax extensions along with AMT relief, research and development tax credits and dozens of other targeted tax benefits – be treated as a stand-alone bill? If not, there’s a strong risk of it getting caught up in the much larger partisan fights over spending, the federal debt ceiling and the whole fiscal cliff debate.
Here’s a quick overview of some of what’s at stake in all this for homeowners:
• Mortgage debt tax relief. Besides the Senate Finance Committee’s bill awaiting action in that chamber, there are at least four separate bills that have been introduced in the House that would extend the law. Rep. James McDermott, D-Wash., is sponsoring a bill that would extend the mortgage forgiveness relief through 2015. Rep. Charles Rangel, D-N.Y., wants to extend it through 2014. Both McDermott and Rangel are members of the tax-writing Ways and Means Committee. Rep. Dan Lungren, R-Calif., is pushing for a three-year extension, and Rep. Tom Reed, R-N.Y., favors a one-year extension, through 2013.