Big decisions affecting homeowners await lame-duck Congress
WASHINGTON — Although 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.
During the lame-duck session, lawmakers 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, among others.
While President 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 strategy question: 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 alternative minimum tax 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.
Senate Democrats reportedly were prepared to bring the bill to the floor for a vote before the election recess, but it never happened. Now the fate of the legislation appears to be up in the air, and House leaders may come up with their own version.
Here’s a quick overview of what’s at stake for homeowners:
• Mortgage-debt tax relief. Besides the Senate Finance Committee’s bill awaiting action in that chamber, there are at least four bills that have been introduced in the House that would extend the law. Rep. Jim 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.
The fact that there is significant bipartisan support for an extension in the House greatly increases the odds that mortgage forgiveness tax relief in some form will pass before the end of the session. One housing lobbyist gives it a 60% chance of passage, even better if post-election lame ducks and victors find ways to compromise on the bigger issues. The main obstacle to an extension: the cost to the federal government.
• Mortgage insurance premium deductions. Under tax code provisions that expired in December, buyers and refinancers who pay either private or government mortgage insurance premiums could write them off subject to household income limitations. The Senate Finance Committee bill would reauthorize these deductions retroactively to Jan. 1, 2012, and extend them through the end of 2013. Because this would cost the government an estimated $1.3 billion over 10 years and has not attracted as intensive a lobbying effort as mortgage debt forgiveness, it may be more vulnerable if negotiators are looking for ways to boost revenue to pay for other cuts or extensions.
• Energy-efficiency improvements to homes. The Senate Finance Committee-passed bill would extend for two years — through 2013 — tax credits for installation of energy-conserving windows, doors and other improvements. The Senate’s bill would also extend credits available to builders of energy-efficient homes. These have a reasonable shot at extension, given strong support from home builders and product manufacturers.
Bottom line: On issues such as tax-system support for financially distressed households and energy conservation, the November elections are important in the long run, but the decisions made during the lame-duck session will have an immediate effect on thousands of homeowners.
Distributed by Washington Post Writers Group.