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By Steve Williard
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Expert Author Steve Williard

Fiscal cliff averted and mortgage forgiveness debt relief act extended for now. The U.S. Congress passed the “American Taxpayer Relief Act of 2012” which has effectively been named the “Fiscal Cliff” package. There are some key points in the bill that will help the American homeowner over the next year .

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First, the Mortgage Forgiveness Debt Relief Act of 2007, has once again been extended until January 1st, 2014. Essentially what this prevents is if a homeowner were to short-sale or foreclose on a property, they would be forgiven the taxes owed on that debt. Typically any debt that has been forgiven is taxed as income by the federal government. For example, you foreclose on a home that has a mortgage on it of $200,000 and the bank sells that home for $50,000, the difference of the debt you have been forgiven is $150,000. So that $150,000 is taxed as income by the federal government. So lets say in the year 2013 you make $50,000 at your job, but also had that foreclosure and now that $150,000 is treated as income, then on paper it would look like you made $200,000 for that year. Then you could be taxed at the 35% level and 35% of $200,000 is $70,000. You would owe the federal government $70,000. But with the Mortgage Forgiveness Debt Relief Act extended that $150,000 would not be treated as income and would be, like the bill says, forgiven .

Next, the bill also extended the Mortgage Insurance Premiums being treated as mortgage interest for tax deduction purposes. What it is saying is if you are currently paying mortgage insurance on your loan, you can continue to treat that as mortgage interest when deducting it on your taxes. That can bring down your total tax liability to the government, so you owe less in taxes and possibly get a refund. This bill has also been extended until January 1st, 2014 .

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Last, it looks as if nothing was touched concerning the mortgage interest tax deductions. Many were concerned that Congress would either do away with or reduce the mortgage interest deductions. That is not to say it will once again be on the table in the near future, but during a housing recovery it would have been careless to even reduce what homeowners can write off, in the form of mortgage interest .

The extension of these bills is a big win for homeowners as America continues to slowly get back on track to a full recovery .

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