WASHINGTON — Here's some good news for homeowners worried that
Though there has been no formal announcement, the
As a result, several key tax code housing provisions lapsed into a legislative coma. Without reauthorization retroactive to Jan. 1, they could disappear from the code and not be available for transactions this year. Both Baucus and
But now there are signs that at least some of the expired housing benefits could be back on Congress' 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 an estimated 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 in the tax code: 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 law said, the forgiven amounts would not be taxable. However, the 2007 carve-out for mortgages was temporary. Congress was required to extend it periodically — which it failed to do 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 part of the housing benefits that Congress failed to extend in 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 specific tax law provision will be part of the bill the Finance Committee ultimately considers. The committee 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.
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 some form of 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.