Posted on: 21st Dec, 2012 01:36 am
Lot of debate is going on about the Fiscal Cliff for the past few weeks. The experts have defined it as a combination of expiring tax cuts and government spending cuts which is scheduled to go into affect on and from January 1st, 2013. It is being expected that this fiscal cliff will also have an impact on the mortgages rates as well as taxes.
Impact on taxes:
Impact on mortgage rates:
Typically, in a down market, the mortgage rates tend to fall. This time around, when the fiscal cliff is on its way, the rates may be at the lowest levels. Experts have opined that rates will move in the short term as we near the cliff. With all the discussion around fiscal cliff, the rates may plunge further. Thus, it break through already record-low rates.
Impact on taxes:
- Mortgage interest tax deduction: It is expected that the fiscal cliff will have an impact on the mortgage interest tax deduction and will cost $84 billion to the government. If this tax deduction are lowered or done away with, then the financial recovery of the middle class will be at a stake. Many people have taken out mortgages, keeping these tax deductions in mind.
- Debt Forgiveness tax deduction: This deduction has played a crucial role in the housing Markey recovery and is set to expire on December 31st, 2012. This act eliminated this extra tax on recipients of mortgage debt reduction. If this act gets expired, then , foreclosure activities will increase as more and more people will agree to foreclosure than short sale in order to avoid paying taxes on higher amount of forgiven debts.
Impact on mortgage rates:
Typically, in a down market, the mortgage rates tend to fall. This time around, when the fiscal cliff is on its way, the rates may be at the lowest levels. Experts have opined that rates will move in the short term as we near the cliff. With all the discussion around fiscal cliff, the rates may plunge further. Thus, it break through already record-low rates.
Many experts have opined that if we go over the cliff, the rates are bound to fall. The impact to GPD and overall impact to the economy will be a sharp decline. Thus, the bond yields will experience downward pressure as investors will make the familiar flight to quality. On the other hand, avoiding the fiscal cliff, however, would likely bring rates slightly higher.
Yes, due to the fiscal cliff, the US economy may have to battle it out with another economic recession known as 'housing cliff'.
It is to be noted here that around $400 billion of tax breaks will expire in 2013. The expiration will include the “Bush-era†cuts, assorted personal and small business cuts, and the 2% payroll tax cut passed in 2010. Apart from this, the Alternative Minimum Tax (AMT) is also set to expire. This will ultimately cause about 28 million (1 in 5) taxpayers to pay more in taxes.
The dreaded fiscal cliff has been averted as both the House and the Senate had come to a consensus. A middle path has been agreed upon which relates to tax breaks and spending cuts. The debt relief laws have also been extended through 2013. This is likely to bring cheers among the homeowners.