The End of Mortgage Debt Relief Law could Hurt Home Prices
Written by Emil Fleysher | December 24, 2012 | Debt
If President Obama and Congress fail to come to an agreement about how to resolve the fiscal cliff, the proposed tax hikes and reduced government spending will cause Floridians a whole host of new troubles. First, without action from Congress the Bush tax cuts will expire on January 1st. The result of this is that income taxes reset to levels last seen during the Clinton administration. President Obama wants the tax breaks to continue with the exception of those earning over $250,000 per year. The downside to higher taxes for the wealthy is that those are exactly the people who are likely to buy homes in Florida. In addition to the expiration of tax cuts, taxes on investments will also rise. Dividends will be taxed at ordinary income rates; up to 39.6% for those in the highest bracket. Also, capital gains taxes could be as high as 20% for top earners. This would have a drastic effect on retirees who live off of their investments.
Another important issue that affects home prices is the fate of the Mortgage Forgiveness Debt Relief Act. This act exempted owners of distressed properties from having to pay capital gains taxes on the amount of debt that was forgiven by their lenders. The result of this was more people were able to stay in their homes through loan modifications and other foreclosure avoidance methods. If the law is allowed to expire, owners who could have pursued short sales and loan modifications will be less inclined to do so and may just let lenders repossess their properties, rather than be faced with a huge tax bill for income they will never see.
A loss of mortgage reduction has the potential to hurt housing. Republicans want to cap deductions to raise revenue however a large number of new time buyers cite the deduction as one of the reasons they chose to purchase a home. The National Association of Realtors had said getting rid of the deduction would cut 15 percent from property values.
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