Fiscal Cliff Shouldn’t Scare Homeowners, But 2013 Should
By JASON GOLD December 4, 2012 US News
With the clock ticking, the nation is engrossed in Washington’s horse wrangling over the fiscal cliff, a nasty double whammy of spending cuts and tax hikes that experts predict could usher in another crippling recession.
But while Democrats defend entitlements and Republicans defend against tax increases, no bigger constituency seems to be more in the cross-hairs than homeowners. The popular mortgage-interest deduction (MID), long thought to have hands-off status, is now on the table as lawmakers try to steer the country away from plunging headlong over the fiscal cliff.
To what degree eliminating or reducing the MID, which costs the government an estimated $98 billion annually, impacts the housing market is debatable. While a potential change in the MID has caused a great deal of coverage in the news—and no doubt great anxiety for the average homeowner—most can sit back and take a deep breath … for now. The MID won’t be part of the fiscal cliff fix.
But that doesn’t mean it enjoys a permanent presidential pardon. The MID, and all the associated homebuyer tax subsidies, will have to prepare for 2013, when large-scale reform of America’s tax system will begin. In addition to the MID, here are some current tax breaks homeowners enjoy, that will come under scrutiny starting next year:
• Mortgage points: When you acquire a home mortgage, oftentimes you pay “points” up front for a lower rate. While this is technically pre-paid interest and categorized under the MID—and therefore tax deductible—it is a huge factor when refinancing or purchasing for the long term. The more points you pay up front, the lower your rate, and the lower your monthly payment.
You can deduct the points the year you purchase a home, and when you refinance you must spread the cost out over the life of the loan. This doesn’t get a lot of attention in the MID discussion, but it should. Buying points at the time of purchase has incentivized borrowers to invest for the long term, and lower payments mean homeowners have the ability to build equity more quickly.
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Orson Klender, Licensed Associate Broker; Keller Williams Real Estate
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