As part of the “fiscal cliff” deal, the American Taxpayer Relief Act of 2012 was extended, which preserved the Mortgage Forgiveness Debt Relief Act, HousingWire reported Jan. 2. The one-year extension exempts borrowers from owing taxes on debt forgiven as part of a refinancing that involved principal reduction or a short sale.
The deal also renewed a law that had expired in 2011 and allows borrowers to deduct their mortgage insurance premiums. Homeowners with an adjusted gross income of less than $100,000 can deduct 100 percent of their mortgage insurance premium payments. Borrowers earning more than $100,000 can still deduct some of the premiums based on a sliding scale.
The tax break applies to private mortgage insurance as well as insurance provided by the Federal Housing Administration, the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture’s Rural Housing Service, HousingWire reported.
What still remains uncertain, however, is whether or not Congress will continue to preserve the mortgage interest tax deduction for the long term.
While the fiscal cliff deal raised the capital gains tax rate from 15 to 20 percent, it applies only to those individuals earning more than $400,000 annually and who have gains of more than $250,000 ($500,000 per household).