Congress finalized the fiscal cliff deal last week and made some changes that will affect homebuyers. Here are some of the changes!
One big one is the tax break on mortgage insurance. The American Taxpayer Relief Act of 2012 apparently extends a law that expired at the end of 2011, which allowed for tax deductions for those paying mortgage insurance. This law now applies to 2012 and 2013. A research report from Compass Point Reserach & Trading said that "the law dictates that eligible borrowers who itemize their federal tax returns and have an adjusted gross income of less than $100,000 per year can deduct 100% fo their annual MI premiums." This will allow borrowers to deduct the mortgage insurance premiums again this year and next and covers conventional, FHA, VA, and USDA fees.
Another big break was the extension of debt foregiveness for those that sell their home with a short sale or some other type of debt reduction. This is extended for another year, it was set to expire 12/31/12. This allows homeowners who experience a debt reduction through principal forgiveness or a short sale to be exempt from paying tax on the forgiven amount.
HARP loans being delivered to Fannie Mae and Freddie Mac after January 1, 2013 come under new representation and warranty standards that could help refinancing in 2013. It allows for HARP loans to be eligible for reps and warrants after a 12 month acceptable payment history and the lender doesn't have to rep and warrant the appraisal. This may allow more lenders to accept higher loan to values for the HARP loans.
The topic still up for discussion is the mortgage interest deduction. Currently you are still allowed to use mortgage interest as a tax deduction but this is still something that Congress keeps talking about. Hopefully nothing will change with it, but it has been discussed. It may come up again later this year.