Homeowners can breathe a sigh of relief now that Congress has resolved contentious budget negotiations without eliminating several tax provisions favoring the housing market.
The popular mortgage-interest tax deduction was spared in a last-minute agreement to step back from severe spending cuts and tax increases — the so-called fiscal cliff — thereby allowing homeowners to continue deducting interest payments from taxable income.
The tax break has been in effect for 26 years, and several plans to reduce the federal budget deficit called for scaling back or eliminating the deduction. Economists and housing industry analysts countered that such a move could stop the housing recovery in its tracks.
Underwater homeowners also scored a victory in Tuesday’s budget agreement. Congress voted to extend by one year a provision that exempts forgiven mortgage debt from taxes, thereby encouraging short sales instead of foreclosures.
Congress also restored a tax deduction for mortgage-insurance premiums that had expired at the end of 2011.
For more details on housing-related provisions in the budget agreement, read a concise summary in The Wall Street Journal’s Developments blog.
(Photo of the U.S. Capitol is courtesy of Vpickering, via Flickr.)