In Memoriam: Housing Tax Credits We Lost in 2014
In case you didn’t know, the sun has set on many real estate related tax provisions as the clock struck midnight on New Year’s. And their elimination could change the way you do taxes in 2014.
Homeowners in the New Year must bid a fond farewell to three major tax provisions affecting the housing market:
- the expiration of mortgage debt forgiveness tax relief;
- deductions for mortgage insurance;
- and the section 25C energy-efficient tax credit for existing homes.
The Mortgage Debt Forgiveness Debt Relief Act expired on December 31. According to the IRS’s website, the law was enacted by Congress in 2007 to help taxpayers exclude income from the discharge of debt on their principal residence. For underwater homeowners, this was a welcome relief as they were often responsible for taxes based on forgiven debt. The legislation allowed homeowners to exclude up to $2 million in mortgage forgiveness taxable income.
This tax break was most often used during a short sale in which a lender agrees to sell a home for less than what the borrower owes on the mortgage – with the remaining balance often forgiven. The forgiven debt doesn’t, however, offer the borrower a clean slate as the remaining balance can be taxed at a pretty penny. Despite lobbying by the National Association of Realtors, this break for homeowners was left off the list of tax-extenders going into 2014.
According to ABC News, however, if a taxpayer is insolvent – meaning their debt exceeds their assets – the mortgage write-off is not considered taxable income.
Another tax break we must bid adieu to is the deduction for private mortgage insurance premiums. Enacted in 2006, the deduction allowed buyers and refinancers who use private mortgage insurance, federal insurance or guarantees, and who itemize on their federal tax returns, to write off their premiums, according to the LA Times.
These write offs were no small potatoes as single borrowers and those who are married and filing jointly with adjusted gross incomes of $100,000 or less could write off 100% of their annual mortgage insurance premiums. Married homeowners who filed separately were able to write off 50% of their premium.
Another painful loss we suffered in 2013 is the expiration of the Section 25C energy-efficient tax credit for existing homes. The provision allowed a credit in an amount equal to the sum of 10 % of the amount paid by a taxpayer for qualified energy efficient home improvements like insulation materials, energy-efficient windows, and external doors and skylights among other upgrades.
While Congress can extend these tax credits and even do so retroactively for 2014, there are no guarantees. Be to stay up to date on these issues as the tax season is right around the corner.