Note: the April 15 filing deadline did not changed
As a result of the fiscal cliff negotiations,: the Internal Revenue Service (per IRS website) announced that processing of tax returns claiming education credits will begin by the middle of February.
Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.
The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. People otherwise able to file and claiming these benefits can start filing Jan. 30.
THE FAMILY AND BUSINESS TAX CUT CERTAINTY ACT OF 2012
There are all kinds of business deductions and other personal deductions and provisions in this bill.
The bill include a variety of tax provision set to expire including: mortgage debt relief, premiums for mortgage insurance and above-the-line deductions for qualified tuition related expenses. In addition, the act extends AMT relief to 2013
Mortgage Debt Relief. Under current law, taxpayers who have mortgage debt canceled or forgiven after 2012 may be required to pay taxes on that amount as taxable income. Under this provision, up to $2 million of forgiven debt is eligible to be excluded from income ($1 million if married filing separately) through tax year 2013. This provision was created in the Mortgage Debt Relief Act of 2007 to prevent the taxation of so-called “shadow income” from foreclosures and cancelled debts through 2010. It was extended through 2012 by the Emergency Economic Stabilization Act of 2008. Based on preliminary estimates, a one-year extension of this proposal is estimated to cost $1.3 billion over ten years.
Introduced Aug 28, 2012
Reported by Committee Aug 28, 2012
Passed Senate (not yet occurred)
Passed House (not yet occurred)
Signed by the President (not yet occurred)
Why You May Want To Consider A Short Sale For Your Property Now
1. Limited Time Tax Benefit:
In 2007, the Mortgage Forgiveness Debt Relief Act of 2007 was passed and created a special exemption in the IRS tax code to forgive mortgage debt incurred from foreclosure, short sale or deed in lieu of foreclosure. Thus, certain debt forgiveness is exempt and not taxable. The scheduled expiration of this program is the end of 2012. However, it is not too late: the Senate committee managed to pull together enough votes to pass the debt relief extension. The bill now moves to the full Senate for possible action. It is likely to pass for 2013, so don’t miss this opportunity to use the tax laws to your advantage while it lasts.
The mortgage debt relief extension could affect millions of families who are underwater on their loans, delinquent on their payments and heading for foreclosure, short sales or deeds-in-lieu of foreclosure settlements. Under the federal tax code, all types of forgiven debt are treated as ordinary income, subject to regular tax rates. The mortgage debt relief extension is big news for home owners who currently are underwater on their loans, delinquent on mortgage payments and possibly heading toward foreclosure, short sale or deed-in-lieu of foreclosure. Ordinarily, the IRS tax code states that all forgiven debt is treated as ordinary income, and taxed at applicable rates.
Here’s an example of what that means to homeowners possibly facing challenges with mortgage debt:
Let’s say a home owner is forced to move because of work. You can’t sell your current home because it’s upside down, you can’t afford to pay rent on a new place and keep up on the mortgage at the same time. This is what it could look like:
Your current mortgage is $300,000 and your home short sells for $200,000. The $100,000 loss (loan forgiveness) from the short sale is reported to the IRS as income (you will likely receive a 1099C). Ordinarily, if your current federal income tax rate is 25%, you would have a $25,000 tax bill on your hands ($100,000 x 25%). However, with the loan forgiveness debt relief act it could be entirely nontaxable.
If you are in this situation, it may be best for you to push forward with a short sale before the cutoff date. In doing so, you may be able to minimize losses by avoiding taxation on the forgiven mortgage debt.
While suddenly selling your home may not be appealing to you, under the circumstances, it may be the best way to prevent further financial hardship.
2. A Decade to Break Even on your Property
It could take 10 years or more before your property value exceeds your mortgage. A conservative example appears below: $325,000 mortgage financed 3.25% for 30 yrs.; FMV $225,000 with 2% annual appreciation.