Obama signs tax bill that features major mortgage deductions

by MPA30 Dec 2014

President Barack Obama has signed into law a bill that extends 55 tax provisions, including one that allows deductions for mortgage insurance premium interest and tax relief on forgiven mortgage debt.

The legislation, known as the Tax Increase Prevention Act of 2014, was passed by the U.S. Senate two weeks ago in a 76-16 vote, after the U.S. House easily cleared it (387 to 46) earlier in December.

The law provides for a retroactive one-year extension on the tax provisions, which would have expired on December 30, and is effective for those filing 2014 returns next year. One of the provisions protects distressed homeowners from paying taxes on any mortgage debt forgiven in a short sale.

Additionally under the bill, taxpayers who own homes can count qualified mortgage insurance premiums as interest for the purpose of mortgage interest deduction on their tax returns.

The U.S. Mortgage Insurers commended the passage of the act by Congress stating it is a vital homeowner tax relief.

“We are especially pleased that the legislation includes the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers,” the coalition said. “We look forward to working with Congress towards permanent enactment of this important tax relief for homeowners.”

After the housing bust, Congress created the Mortgage Forgiveness Debt Relief Act of 2007 with the intention of protecting homeowners who lose their home in a short sale or deed-in-lieu of foreclosure from an outrageous tax bill.

Before the exemption, distressed homeowners had to pay taxes on mortgage debt that was canceled or forgiven by the lender. The amount of forgiven or canceled mortgage debt was treated as ordinary income and taxed as such.
 

COMMENTS

  • by Wm Matz | 12/30/2014 2:20:56 PM

    Folks, I am a tax attorney. This [and most] article grossly overstates the effect of the mortgage forgiveness relief.
    1. The relief only applies to "acquisition indebtedness". Borrowers with cash out refis receive little or no protection.
    2. In states, such as CA, that have strong anti-deficiency protection, the borrowers are often already protected.
    3. Other borrowers may qualify for relief under the bankruptcy or insolvency exceptions.

    Borrowers facing this issue need to see an attorney, not an accountant, as questions of state law will often control the Federal tax consequences.

  • by Michael H. | 12/31/2014 11:36:13 AM

    What does the legal crystal ball see for 2015... ? We can not be expected to run our brokerage and advise our Seller clients during the entire year shy two weeks then amend and turn those decisions over when someone signs a retroactive bill into law the last week... can you imagine the discussion we would have... Short Sale or Foreclosure ? I advise going this way because I see the President and Congress overturning the present ______ law at the last minute and making it retroactive... right ! I wish the tax law would be in concrete as of Jan. 1st and remain unchanged til Dec. 31st - Period. Any future changes should only go into effect the following year so that people (taxpayers) could plan and have a life strategy... goes for Obama Care Capital gains and the whole gambit.

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