As we turn the calendar on yet another year, it's time to start thinking about income taxes once again. How much do you know about taxes? Take this pop quiz and see if you do as well as the guy interviewed on the street in Times Square…
Until the Mortgage Debt Forgiveness relief act was created in 2007, a person who short sold his home had to pay the IRS income tax and the mortgage debt forgiven in a short sale or mortgage term work out on his home. Clearly that made short selling and certain modifications impossible for many.
If distressed homeowners had to pay tax on the phantom income from mortgage debt forgiveness, many may have no choice but to go into foreclosure.
The Mortgage Debt Forgiveness act was created so that homeowners and banks and affected communities could utilize alternatives and avoid the negative impact of a foreclosure. But congress allowed the act to expire at the end of 2013…
The address again to email your questions or responses to is: mailto:asktheexpert@shariolefson.com
Check out our other articles and tips on taxes that affect Columbia SC homeowners by clicking on the Taxes link to your right under Columbia SC Real Estate Categories.
If you bought a home or refinanced your home in 2013, mortgage points you paid on the new loan are tax deductible. But depending on whether you purchased a home last year, or simply refinanced the one you already had, when you can deduct the mortgage points varies, as explained in this brief video…
Check out our other articles and tips pertaining to Mortgage points and mortgages in general by clicking on the Columbia SC Mortgage Info link to your right under Columbia SC Real Estate Categories.
Dozens of tax breaks expired on January 1st. Columbia SC homeowners may have to do without some of these when they prepare their taxes next year, unless some or all of these deductions and breaks are retroactively extended by Congress. No one can confidently predict what will happen with restoring some or all of these deductions. The situation is further complicated by the fact that Congress and the Obama administration want to accomplish major tax reform in 2014.
Expiring Tax Provisions of Most Importance to Columbia SC Homeowners
Mortgage Insurance Premiums Deduction: Since 2007, qualifying Columbia SC homeowners have been able to deduct premiums for mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service, and private mortgage insurance. Columbia SC homeowners whose incomes are not too high can treat such payments the same as mortgage interest payments. Unless the law is extended, no deduction will be allowed for amounts paid or accrued after Dec. 31, 2013.
Discharge of Indebtedness on Principal Residence: Since 2008, Columbia SC homeowners have been allowed to exclude from their taxable income up to $2 million of debt forgiven on their principal residence by a lender in a short sale, mortgage restructuring, or forgiven in a foreclosure. Unless this provision is extended, the exclusion will not apply to indebtedness discharged after 2013. If this provision does expire, the impact will vary from state to state.
Tax Credit for Qualified Energy Efficiency Improvements: Columbia SC homeowners have been able to claim a maximum lifetime tax credit of up to $500 for installing energy efficiency improvements in their main homes, including the cost of insulation, windows, doors and roofs. The credit expired at the end of 2013.
Credit for Construction of New Energy-Efficient Homes: Since 2006, certain contractors have been allowed an efficient-home credit of $1,000 or $2,000 for constructing or manufacturing qualifying energy-efficient homes. Like the other energy efficiency deductions, this expired at the end of 2013.
Many of these provisions are quite popular and likely will be extended by Congress. Exactly when or how lawmakers will get around to doing this is unclear.
Check out our other articles and tips on taxes that affect you as a Columbia SC homeowner by clicking on the Taxes link to your right under Columbia SC Real Estate Categories.
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No Mortgage Limit Changes Before Spring
Mortgage lenders will get at least six months' notice before the government reduces the limit on the size of loans that taxpayer-owned Fannie Mae and Freddie Mac can back.
The Federal Housing Finance Agency, which has already said it was considering lowering the cap to wean the housing finance system off its dependence on the government, said any change would be phased in to avoid economic disruptions.
The housing finance industry had expected officials to lower the limits on Fannie Mae and Freddie Mac-backed loans on January 1, 2014. While it will get more time to prepare for any changes, a decision on whether to lower the limits, and by how much, would still be made later this month (November).
Currently, Fannie and Freddie cannot back loans of more than $417,000 in most markets, although the cap ranges as high as $625,500 in some pricier areas – and up to $721,050 in Hawaii.
Lowering the caps, which were raised in 2008 to help keep the mortgage market liquid during the financial crisis, could make it harder for Americans to obtain home loans and drive up mortgage costs, unless the private market steps in to fill the void.
The two firms do not directly make loans. They purchase mortgages from lenders, which they either keep on their books or bundle into securities that they offer to investors with a guarantee. Those investors pay Fannie and Freddie a "guarantee fee" when they buy the securities.
Some in the industry and lawmakers have tried to challenge the FHFA's legal authority to reduce the loan limits. In addition, a bipartisan group of lawmakers in the House of Representatives have called on the agency to drop its plans to change them altogether. We'll keep you posted on any changes, whatever they may be, right here at this website. Stay tuned!
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Housing Inventory Fell in September
The number of homes listed for sale dropped slightly in September but a growing number of housing markets are witnessing higher levels of for-sale inventory compared with one year ago.
Nationwide, there were 1.94 million homes listed for sale in September, down by 1.7% from August but still the third highest level this year, according to a report from Realtor.com. Listings were down by 2% from one year earlier, but nine of the top 30 metro areas saw year-over-year increases in the number of homes for sale.
The housing market has seen brisk sales through the third quarter of this year, but there are signs that severe inventory crunches from earlier this year are slowly beginning to ease as rising prices give more sellers the incentive to test the market.
Home listings tend to slow in September as the school year begins, and the drop in listings last month was lower than normal.
The National Association of Realtors estimated recently that housing inventory stood at 2.21 million units in September, which was unchanged from August but up by 1.8% from last year's levels. That marks the first time in more than 2 and 1/2 years that the Realtors group has reported year-over-year gains in unsold home inventories.
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IRS Delays Start of Tax-Filing Season (Again)
The IRS announced recently that it will delay the start of tax-filing season by up to two weeks because of the government shutdown. However, taxpayers will still be responsible for turning in their 2013 returns by April 15. (Did you really expect a delay there too?)
This will be the second year that the IRS has delayed accepting tax returns due to legislative matters. Just after Jan. 1 this year, Congress approved a fiscal deal that adjusted tax rates and caused the IRS to push the start of tax-filing season from January 22nd to January 30th. Some taxpayers even had to wait until February or March to file.
The IRS says it will begin accepting tax returns between January 28th and February 4th. The agency plans to announce in December a final date for when the filing season will officially kick off. We'll update you here when that final date is announced.