The current mortgage debt cancellation tax relief provision expires at the end of 2013. As soon as the last one-year extension was passed on New Years’ Day 2013, NAR began working on another extension of this critical tax provision. With NAR’s encouragement, champions of this provision have introduced bi-partisan bills in both the House and Senate (H.R. 2994/S. 1187), to extend the provision for one or two years. Unfortunately, the current prospects of either of these bills being enacted before the end of the year are very slim. We are facing four big hurdles.
1. The Chairmen of both tax committees have committed to passing comprehensive tax reform legislation this Congress. As part of reform, they have both indicated that they plan to go through the long list of expiring items and cull those that are not worthy of permanence and make all the “worthy” ones a permanent part of the tax law. However, tax reform is still months away from completion. If they were to extend the expiring provisions now, it might appear that they were giving up on tax reform. This is not a signal they wish to send.
2. There are over 50 such expiring tax provisions (often referred to as “extenders”). Congress rarely passes single tax provisions by themselves. The rules in both the House (and especially the Senate) could allow for added amendments that would turn a simple bill with wide support into a politically divisive bill.
3. In Congress’ view, there are no real “must do” items that must before the end of the year. In past years, some of these tax provisions have been added to “must pass” legislation as amendments. There are no such items Congress believes they must complete before the end of the calendar year, so there is not much of a sense of urgency or a legislative vehicle for NAR to try and attach mortgage cancellation to.
4. The extension of the tax relief “costs” money to the Treasury. The Joint Committee on Taxation estimates that a one-year extension of the mortgage debt cancellation relief would cost $3.7 billion. Some Members of Congress will insist that amount be offset by raising taxes elsewhere or cuts in spending – an ongoing debate in Congress.
In sum, getting this provision passed by year-end is not impossible, but is a very steep climb. Because of the factors above, NAR has so far decided not to issue Member-wide Call for Action at this time, but has instead focused on working with Congressional leadership and the bill sponsors to find additional support for moving this legislation. Our lobbyists are in daily meetings with Members of Congress, pressing for an extension and providing the most up to date data on short sales and foreclosures to continue to highlight this as a top priority.
What can you do? First, you can contact your Representative and Senators to urge them to act on these bills. If you have clients in distressed situations, urge them to do so as well. The more Members hear from constituents, the better.
NAR cautions REALTORS® against giving clients tax advice, as every situation is different, but at this point our best estimate is that Congress will pass some extension of this law in 2014 and make it retroactive. There is precedent for Congress doing this, but no guarantee.