The fiscal cliff draws closer by the day, and federal lawmakers are now trying desperately to reach an agreement that is at least somewhat palatable to both parties. Now, those negotiations might include a number of costly tax breaks designed to help consumers who owe more on their home loans than their properties are worth.
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Public programs that allow consumers to sell homes for less than they’re worth, or get the terms of their loans altered through their lenders to make the mortgages more affordable, but those have been costly for the federal government, according to a report from the Washington Post. As such, Republicans may now be targeting those tax breaks for elimination in the fiscal cliff negotiations, and experts say the results would be disastrous for many homeowners who are still underwater.
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Specifically, the Mortgage Forgiveness Debt Relief Act, passed in 2007, allowed consumers to skip out on paying tax bills related to their savings from getting out from under upside-down home loans, the report said. However, that law may be allowed to expire at the end of the month, along with other breaks.
It’s important to note that members of both parties, in both houses of Congress, believe that it’s important to extend the tax break for these significantly disadvantaged homeowners, the report said. Nonetheless, it could be a bargaining chip in the negotiations if they go sideways at any point between now and the end of the year.
“One way or another, we need to get this done by the end of the year,” Sen. Debbie Stabenow, a Michigan Democrat, told the newspaper.
Experts say that if the deal is allowed to lapse into 2013, that will put a significant burden on people who already can’t afford to deal with the financial problems related to having an underwater home loan, the report said.
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Another popular tax break that millions of consumers rely upon every year to reduce their obligations to the IRS, but is up for discussion in the fiscal cliff negotiations, is the mortgage interest deduction. Experts say if it’s cut, it could cost the average American family thousands of dollars per year.
Image: urbaer, via Flickr