The tax break for forgiven mortgage debt was extended by lawmakers as part of their “fiscal cliff” legislation passed in December. The extension is good through 2013.
I posted last month that many sellers and their agents were rushing to get their short sales sold by the end of the 2012 because the Debt Forgiveness Act of 2007 was expiring. This Act allows home owners facing short sales, reduced loan principals, or foreclosures to avoid paying taxes on any debt still owed to the bank. Otherwise, the debt would have been taxed by the IRS as income.
This is GOOD news for homeowners facing a financial hardship and evaluating their options to get out from under their mortgage.
In addition, Mortgage Insurance Tax Deductibility passed as part of the American Taxpayer Relief Act of 2012. This allows Mortgage Insurance to be tax deductible for 2012 and 2013.
The provision extends the ability to deduct the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out by 10% for each $1,000 by which the taxpayer’s Adjusted Gross Income (AGI) exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an AGI in excess of $110,000. The bill extends this provision for two additional years, through 2013.