We knew it would go down to the wire – after countless discussions, negotiations and stories by the media, Congress finally reached an agreement to avert the so-called “Fiscal Cliff,” and the housing market, upon initial impressions, seems to have escaped the party relatively unscathed.
Not only is the mortgage interest tax deduction still in place, the Mortgage Forgiveness Debt Relief Act of 2007 was extended for another year and even the deductibility of mortgage insurance premiums for select homeowners was renewed through 2013. That all sounds great, but does the nature of Congress’ bargain bode unwell for housing?
The Housing Market and the Fiscal Cliff: Dancing Cheek to Cheek
As HousingWire noted earlier today, the immediate outcomes of the American Taxpayer Relief Act of 2012, as the fiscal cliff bargain was called, were a net positive for the housing market:
- The mortgage insurance premium deduction, which has expired at the end of 2011, allows eligible borrowers who itemize their tax returns (and who have incomes of less than $100,000 per year) to deduct 100 percent of their annual mortgage insurance premiums.
- The Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31 of 2012, was extended for 2013, so for another year, homeowners engaging in short sales will have their debt reductions excluded from taxable income (though as we’ve covered before, that only applies to a specific kind of underwater homeowner).
- Even the increase of the capital gains tax rate from 15 to 20 percent for individuals earning more than $400,000 will have minimal impact on housing; as HousingWire explained, only if individuals have the aforementioned income level and gain more than $250,000 from the sale of a property will they be affected by the higher rate.
- And as RisMedia noted, no trade group was more active than the National Association of Realtors for housing legislation in 2012, so it’s likely that NAR’s political clout reflected positively on housing in the negotiations.
Housing Market – Sequester This!
Of course, as with many things in Washington, it’s not a simple matter of President Obama signing the American Taxpayer Relief Act of 2012 and all our problems going away. As NPR wrote in an excellent summary of the act and its importance in the fiscal cliff discussions, the U.S. government still faces the same budget deficits that it did in 2012; rather than addressing those deficits, the act instead targets the taxation side of the fiscal cliff discussions, and delays any discussions of the deficit (and the automatic spending cuts, sometimes called “sequestration,” that would take place) to March.
And that fact, said Spencer Cowan of the Woodstock Institute here in Chicago, should keep real estate agents on their toes.
“Clearly, this is a very temporary situation,” Cowan said. “I wouldn’t feel safe about anything.”
Between the government’s budget deficit, the debt ceiling and the fragmentary nature of our current Congress, Cowan said all are problems that still need to be addressed, and though housing dodged a bullet in the preliminary discussions, it could still become a bargaining chip come March, when the sequestration talks resume – and the coveted mortgage interest tax deduction could definitely be a part of those discussions.