Senate ‘Cliff’ Bill Retains Mortgage Relief Act

Senate ‘Fiscal Cliff’ Bill Extend the Mortgage Relief Act

As the Administration and Congress negotiate a solution for the fiscal cliff, those discussions have included outright elimination of or changes to the Mortgage Relief Act.

Tax rates would remain the same for most households and mortgage cancellation relief is extended in a budget package passed by the U.S. Senate to avert the so-called fiscal cliff. The House today could take up the bill, which NAR has been monitoring closely because the fiscal cliff’s automatic tax increases and federal spending cuts involve programs important to real estate and impact household wealth. Based on what the House does, the provisions in the Senate bill could change in the final bill.

The “American Taxpayer Relief Act of 2012’’ passed on a bipartisan 89-9 vote in the middle of the night and extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.
The tax rate on capital gains would also remain the same, at 15 percent, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20 percent.
To change this established portion of the U.S. tax code would be to change the rules in the middle of a game, resulting in a massive unexpected redistribution of wealth in the country as most people itemize the Mortgage Relief Act at some point in their home-ownership.
One of the primary misconceptions is that only the wealthy benefit from the Mortgage Relief Act, when in reality it benefits primarily middle- and lower-income families. Almost 91 percent of people who claim the Mortgage Relief Act earn between $50,000 and $200,000 per year and two-thirds of those who claim the Mortgage Relief Act are middle-income earners. Isn’t the goal of the President and Congress supposedly not to hurt the middle class?
Because of the capitalization impact of the expected stream of future mortgage interest deductions, removing the Mortgage Relief Act would decrease home values (conservative estimate) by 15 percent according to the National Association of REALTORS®, and destroy $2.5 trillion in housing wealth… and that includes the wealth of homeowners who own their homes free and clear. That’s a big hit on a family’s pocketbook anytime but especially now.

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