The U.S. Senate passed a bill on Tuesday night that retroactively extends 55 tax provisions, among which are allowing deductions for mortgage insurance premium interest and tax relief on forgiven mortgage debt.
The tax provisions covered by the bill, known as the Tax Increase Prevention Act of 2014, expired on December 31, 2013. The bill provides for a retroactive one-year extension which expires on December 30 of this year and would be effective for those filing 2014 returns next year.
H.B. 5771, originally introduced by U.S. Representative Dave Camp (R-Michigan), Chairman of the House Committee on Ways and Means, on December 1, 2014, passed in the Senate by a 76 to 16 vote on Tuesday night. It passed on the House on December 3 by a vote of 378 to 46.
The Joint Committee on Taxation (JCT) estimates that extending the tax provisions for one year would reduce revenues by $44.7 billion over the 10 fiscal years from 2015 to 2024, according to a release by the Committee on Ways and Means.
About $3.143 billion of that revenue reduction would come from Section 102 of the new bill, according to JCT. This provision calls for the extension through December 30, 2014, for homeowners to exclude forgiveness of qualified mortgage debt (the remaining mortgage loan balance when a home is sold in a "short sale" to avoid foreclosure) from their gross income when filling out tax returns.
Section 104 of the bill allows taxpayers who own homes to count qualified mortgage insurance premiums as interest for the purpose of mortgage interest deduction on their tax returns. Taxpayers with an adjusted gross income of between $100,000 and $110,000, or half of that amount for married taxpayers filing separately, would be phased out ratably. The JCT estimates this provision will reduce revenues by $919 million for the 10-year period from 2015 through 2024.
Senator Joe Manchin (D-West Virginia), one of the 16 who voted against the bill, said he doesn't believe that temporary extensions are the answer to the nation's long-term financial problems.
“Since I have joined the senate more than four years ago, I have questioned again and again why congress refuses to confront our financial challenges when our country faces more than $18 trillion in debt?" Manchin said in a prepared statement. "Instead of working together on comprehensive tax reform, we continue to kick the can down the road by passing temporary tax deductions year after year. Passing tax extenders simply places a band-aid on our financial problems and is irresponsible, reckless and unethical. It is past time members of congress come together to find a commonsense, comprehensive pathway toward fixing our long-term spending and debt problems. We need a big fix, focusing on a three-pronged approach that increases revenue, reduces out-of-control spending, and reforms our tax code. To start, we can work together to pass long-term, comprehensive tax reform that will restore fairness and confidence in our economy."
Senator Heidi Heitkamp (D-North Dakota) was one of the 76 who voted in favor of the tax extensions. She said the one-year extension is a step in the right direction, but more needs to be done.
"Today, the senate and house finally came together to extend tax relief so many of our communities need for the next year – but it’s not enough," she said in a statement. "We have to seek practical, lasting solutions that really work, because nail-biting and foot-dragging is no way to legislate – it’s not the way businesses run, it’s not the way families work, and it’s not the way this country should operate. We need to come together to find longer-term solutions for the communities that count on us to get the job done.”