The housing market and the housing industry have escaped the ax on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget fiasco.
A bill passed by Congress to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.
The housing industry dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage interest deduction. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.
The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.
These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)
“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” according to Issac Boltansky, a Washington analyst with Compass Point Research and Trading.
However, analysts still believe the mortgage interest deduction could be altered as Congress continues to look for ways to save money. Mr. Boltansky says, “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will dodge Congressional scrutiny going forward.”
As always, we will keep you up to date on any further mortgage interest deduction talks that may come out of Washington in future discussions.
IRS To Delay Tax Refunds to Millions of Homeowners
Own and home and pay interest on a mortgage? All taxpayers who want to deduct their mortgage-finance charges and related real estate costs must file a lengthy itemized return, rather than the simple 1040-EZ Form that can be completed by those who take the preset standard deduction. However, the Internal Revenue Service recently announced that it won’t be able to begin processing returns for the roughly 50 million taxpayers who itemize because the agency has to print new forms and update its computers.
The agency was blindsided by both Congress and President Barack Obama: It had most of its forms and computers ready to begin processing this month, but then had to start all over again after the controversial Bush tax cuts that were slated to expire at the end of 2010 were extended by our elected officials in late December.
The required updates will take several weeks to complete, the IRS says, so it won’t be able to begin processing itemized returns until mid or late February. The delay means that you’ll likely need to wait until April, May or even June to receive your refund check.
Despite the government’s holdup, you should file your return as quickly as possible so it will land on top of Uncle Sam’s 50-million stack rather than the bottom. The sooner you file, the faster you’ll get your refund.