Legislative Changes Regarding Real Estate in the New Year
With the New Year on its way, and in addition to the “fiscal cliff” issues, there are a few changes that will or may arise from the Legislature that affect individual homeowners and potential buyers of real estate, and the real estate market as a whole.
The first such change will be the possible elimination of real estate related income tax deductions. If such a bill passes, the individual tax payer would no longer be able to benefit from taking deductions for the mortgage interest they pay throughout the year on their mortgages and real estate taxes that are paid on such real estate, or such deductions would be limited or modified in some way. Experts are debating as to whether or not this elimination would cause potential homeowners to decide against owning and continue renting for their housing needs.
Another change that may be on the horizon is the possible failure of Congress to extend the Debt Relief Act which will expire on December 31, 2012 if not renewed. The Act temporarily amended the tax code to allow mortgage debt that is cancelled through a loan modification, foreclosure sale or short sale to escape tax as ordinary income. Depending on the amount of mortgage debt forgiven, a homeowner could be subject to substantial tax if that amount is considered ordinary income by the IRS.
On a better note, the Federal Housing Administration (FHA) has already eased its standards in certifying condominiums and their homeowner’s associations in order to allow more access to FHA mortgages. The FHA, before certifying a condominium, looks at the viability of the association, which usually includes a review of the association’s budget, reserves, assessment default rates and ratio of owner-occupied units to leased units. The FHA has significantly lowered the factors they require for certification. Whether this will significantly increase the numbers of buyers for said condominiums (traditionally purchased by first time home buyers who are in need of FHA’s assistance in the loan market) or not is the question.
Given the above, it seems like there will most likely be some changes in the coming year that will affect the real estate market. The extent of said changes is still up in the air.