Some of the most interesting mortgage news of the year takes place in late December when we find out how the political system works on Capitol Hill.
Within the rules and regulations we all follow are a bunch which only last a year or so. To continue the benefits that such rules provide — things like tax write-offs — it’s necessary for Congress to reauthorize short-lived regulations before they expire. Bills to continue federal laws for a short period are called “extenders” and they’re a politician’s delight.
Why do elected officials like extenders?
There’s always a tiny possibility that a given rule will not be continued and that gives politicians leverage. They can effectively say to lobbyists, “you know, that extension you like is really looking iffy in the back offices.” Translation: I have an election coming up and could really use your support….
For real estate there are several extenders of great importance which look like done deals and will once again be continued into 2016.
Mortgage Debt Forgiveness
We now have seven million fewer mortgages than we did in 2009. Homeownership is at a 48-year low.
These figures reflect the reality that millions of people were foreclosed as a result of the mortgage meltdown. They not only lost their homes but many also had large mortgage balances that remained unpaid. Under the tax rules unpaid mortgage debt is regarded as “imputed” income, money which is actually taxable. For example, if you owe $50,000 in unpaid mortgage debt the government says you now have $50,000 in additional income, income on which you owe taxes.
Under the 2007 “Mortgage Forgiveness Debt Relief Act,” Congress changed the rules and said unpaid mortgage debt would not be regarded as taxable income — but only for five years. The rule has been continued through a series of extensions and now mortgage borrowers will be protected through 2016.
Mortgage Insurance Premium Deductions
The ability to write off mortgage insurance premiums has been in the tax code for several years but it’s a rule which is only extended annually. Under this regulation borrowers can deduct the cost of mortgage insurance premiums in the same way that they deduct mortgage interest. However, the rule is limited. As the IRS explains, “mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction.” In other words, the deduction only applies to mortgage insurance premiums paid since 2007. Also, the amount that can be written off declines for taxpayers as their incomes increase. See a tax pro for details.
If mortgage insurance premiums were not deductible homeowners would be forced to pay more in taxes and that’s never a politically popular position.
The mortgage insurance deduction was scheduled to end on December 31st but now Congress has decided it should continue until the end of 2016, at which point we can go through the extension process once again. Naturally, the legislation to continue the mortgage insurance deduction is exactly where you would expect to find it: it’s on page 67 of the “House Amendment #2 To The Senate Amendment To H.R. 2029, Military Construction And Veterans Affairs And Related Agencies Appropriations Act, 2016” — also known as the “Protecting Americans from Tax Hikes Act of 2015.”
Why is something about the mortgage insurance deduction found in legislation related to military construction and veterans affairs? The thinking is that legislation will fly through the system if it’s buried in a bill the President is sure to sign, whereas if it’s a standalone bill it might not get through the House, the Senate or a presidential veto.
Energy Efficient Homes
In the same way that the automobile fleet is far more energy-efficient than it used to be we want the same thing to happen with the housing stock. This means we want to encourage the construction of more efficient houses and to do this Congress wants a one-year extension of the credit for energy-efficient new homes.
This continuation, says the House Ways and Means Committee, “extends through 2016 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.”
Notice that the credit goes to builders and contractors who have lots of lobbyists on Capitol Hill — and not to homeowners. Consumers will have to battle with builders and contractors to get the benefits of this legislation passed through to them — if they even know about the extension.