As the year comes to an end, many New Jersey homeowners may be wondering whether Congress is going to renew the homeowner friendly tax provisions that are expiring on Dec. 31. Many homeowners continue to struggle with their mortgage debt and are doing what they can to find some closure before the end of the year. One of the biggest questions on a lot of minds right now is what will happen come Jan. 1 if the situation isn’t resolved.
Congress has begun its lame-duck session, and it’s no secret they have a lot of work to do. As Congress considers how to save our economy and get the country out of the recession, all many homeowners in New Jersey want to know is whether they will have to pay income tax on any debt forgiveness they can get from their lender. It has been intimated that Congress would like to completely restructure the tax code in 2013, but the question is whether Congress will be able to do that before the end of the year.
In the meantime, the fate of tax benefits regarding property taxes, mortgage interest and home-sale capital gains exclusions, the Mortgage Forgiveness Debt Relief Act, tax deductions for energy conservation home improvements and mortgage insurance premiums are all on the proverbial chopping block. If Congress fails to extend these homeowner friendly tax provisions, many millions of Americans could end up in worse shape than they are already. Any amount forgiven by a lender may end up being counted as taxable income–in some cases, that means tens of thousands of dollars.
Regardless of what Congress does, it doesn’t change the fact that many are still struggling with their mortgage debt. If a homeowner is unable to obtain a loan modification or complete a short sale or foreclosure, there is still another option. For those homeowners for whom it makes sense, filing for bankruptcy protection could give a homeowner another chance to save their home or the ability to walk away without having to worry about the tax ramifications.
Source: The Washington Post, “Lame-duck Congress may tackle issues affecting buyers and sellers of homes,” Kenneth R. Harney, Nov. 16, 2012
