If you’re a tax-paying homeowner, there might be some bad news on the horizon.
Our legislators in Washington, D.C. haven’t exactly seen eye-to-eye on a lot of things in 2013. In addition to contentious and ongoing debates on the debt ceiling and sequestration cuts, it appears as though a number of tax deductions might be left to expire, including several that involve homeownership.
The Good News
These tax deductions are really popular, and if there’s one thing that politicians love doing, it’s pleasing their constituents. According to Stephen Fishman of Inman News, the Obama Administration and several key members of Congress have been working to extend some of the expiring credits.
Their efforts are complicated by the fact that many politicians are looking for far-reaching and comprehensive tax reform and there could be resistance to picking and choosing which deductions and credits to extend, instead of tackling the whole issue.
While preliminary efforts have stalled, Congress could work quickly or retroactively to reinstate certain tax deductions, should a consensus be reached.
The Bad News
We all know the political winds shift quickly. But as of right now, there’s been no action to extend or prolong certain key tax deductions. It’s unlikely that Congress will take any action before the holiday recess, and the current tax legislation is set to expire on December 31. Barring last-minute, miraculous or retroactive action, it looks like homeowners will have to start accepting the reality that these tax incentives might be gone.
The Potential Impact
In a separate article, Fishman details all of the real estate tax implications of the legislation expiring. You can see the full list here, but below is a summary of some of the major ones and how they could impact you in 2014:
- Mortgage insurance premiums deduction – As long as your income wasn’t over the maximum threshold and provided your mortgage met certain standards, you could deduct your PMI premiums the same way you could mortgage interest. Not anymore, unless Congress acts.
- Discharge of indebtedness on principal residence exclusion – A fancy way of saying that, in certain circumstances, you were able to exclude up to $2 million of debt forgiven if your primary residence underwent a short sale, restructuring or loan forgiveness of some kind. Any such principal reduction will be counted towards your taxable income as of 2014.
- Tax credit for qualified energy efficiency improvements to principal residence – You used to be able to deduct up to $500 annually for making energy-efficient improvements (like insulation, windows, doors and roofs) to your primary residence. Looks like this is going away too.
As our elected officials continue to debate the federal budget, more cost-cutting measures like the elimination of tax incentives will no doubt be discussed.
Nobody likes having to pay more taxes. But are these steps necessary to balancing the budget? Give us your thoughts by posting a comment below!