Today, the impact of the legislation passed by the House and Senate and autopenned into law by President Obama is still being digested and the entirety of its impact is still being analyzed for its impact on businesses, development, and individuals across the country.
Here in Florida, from a real estate perspective, there are two key things that we are able to confirm that have been resolved.
1. The Mortgage Insurance Deduction From Income Taxes Continues
The deduction of mortgage insurance from federal income taxes has been extended for one year: to December 31, 2013. This allows home buyers who have less than a 20% down payment for their home purchase to buy the required mortgage insurance to deduct that insurance expense from their taxes.
The mortgage insurance requirement varies from lender to lender: VA mortgage insurance requirements are much different than private, conventional lenders mandate for new home loans. In its various forms, mortgage insurance policies are necessary for people who are getting a home loan without putting 20% of the purchase price on the closing table.
Accordingly, this extension impacts millions of Americans who want a home loan in 2013. It also impacts the housing industry as well as the national real estate markets -- particularly the real estate markets here in Florida, which are working so diligently to recover from the past few years of hardship.
2. The FIT Exemption of Deficiencies in Short Sales and Foreclosures Also Survives
For those who sell their homes in a short sale, as well as those borrowers whose mortgages go into default and result in foreclosure, there will be an amount left on the bank's balance sheet after the home is sold. That amount is the substracted sum of the sales price (and expenses) from the mortgage amount, usually refered to as the "deficiency."
Several years ago, a federal law was passed to exempt that deficiency amount from being considered as income for federal income tax purposes. This law was set to expire on December 31, 2013, and many in the real estate industry and financial circles were very concerned that its expiration would dampen and harm the fledging recovery in housing.
The new fiscal cliff legislation extends this exemption of deficiency amounts from short sales and foreclosures. However, there is a caveat: it does so only for properties that are homesteads. Sell a second home or investment property, and there remains FIT implications as of 2013.
It's a short term resolution, however: this exemption also expires on December 31, 2013.