American Mortgage Blog

Occasionally the question comes up regarding the tax implications of various housing-related events. Although it is always best to consult an accountant, there are some well-known tax situations in the current environment.

For example, the IRS changed the law that required consumers to pay tax on mortgages forgiven by a lender. (Those amounts used to be considered taxable income on a homeowner's tax return.) But there is no relief or tax deduction, however, for selling your home at a loss. A married couple, in most cases when selling their primary residence at a gain, can “pocket” up to $500,000 of tax-free capital gain.  But the law did not address homes that were sold at a loss, and unfortunately there still is no benefit for folks who bought at the peak or made expensive remodels.

The ability of a borrower to deduct interest on a home mortgage is often a large part of the home buying decision. Currently one can deduct interest on up to $1.1 million of mortgage debt, which is where the vast majority of borrowers find themselves. Part of the issue with home loans of this magnitude is “leverage,” which can amplify gains in a rising market just as it amplified losses in a falling one. But thanks to federal tax law, no form of debt is potentially as beneficial to the average citizen as the home mortgage.