So you think battling the lines at Macy’s on Black Friday or ensuring that your credit card information wouldn’t get stolen as you maxed out your card on Cyber Monday were difficult? Try dealing with an impending fiscal cliff. Yep, that’s right. The fiscal cliff is the latest challenge our country and our current administration face before we head into the new year. But, what exactly is this ‘fiscal cliff’ we keep hearing about? And how will could it impact your homebuying decisions?Fiscal Cliff, Defined
Quite simply, the fiscal cliff refers to an expiration of tax cuts and institutes large spending cuts, both of which will take effect as 2013 begins. As many sources have stated, the cliff adds up to more than $600 billion in higher taxes and spending cuts in major entitlement programs. As other sources have stated, the middle class will face the brunt of the tax hike, with the average family of four seeing an increase of $2,200 next year if the Bush-era tax cuts are allowed to expire.
This explanation is barely scratching the surface of even the surface itself, but I’m not trying to inflame any political debate here.
There are a few approaches to dealing with the cliff, which, as many experts say, could send us back into recession, slash the deficit, or produce at least moderate growth.
The Fiscal Cliff and Housing
Homebuyers and homeowners, take note! Perhaps the most crucial element of the cliff is the mortgage interest deduction, which is currently still lying on the negotiating table at Congress. As you well know, the mortgage interest deduction is one of the drivers of the housing market and, to put it simply, is a really popular tax break. The deduction allows homeowners to reduce taxable income by the amount of the interest on the mortgage. As long as you itemize, the savings can be quite significant.
If we go over the cliff, the mortgage interest deduction could likely be slashed, hampering a now recovering housing market. And, of course, the impact on families’ wallets will be significant, as well.
Going over the cliff would change the housing industry as we know it. We’ve broken down the basics here for you, but let us know-
How Do You Think the Fiscal Cliff Could Impact the Housing Market?
image via @MotherJones