The U.S. Senate Committee on Finance held an open executive session Tuesday morning to consider amendments to an original bill to extend certain expired tax provisions, which includes three critical extensions for the housing industry.

The description of the chairman’s modification to the chairman’s mark of a bill to extend certain expired tax provisions (found here) proposes the following:

Improve mortgage interest deduction spending

Present law:

Any person who, in the course of a trade or business during a calendar year, received from an individual $600 or more of interest during a calendar year on an obligation secured by real property (such as mortgage interest) must file an information return with the IRS and must furnish a copy of that return to the payor.14 The information return generally must include the name, address, and taxpayer identification number of the individual from whom the interest was received, and the amount of the interest and points received for the calendar year.

Description of proposal:

Under the proposal, the following additional information is required to be included in information returns filed with the IRS and statements furnished to the payor with respect to a debt secured by real property: (i) the amount of outstanding principal on the mortgage as of the beginning of the calendar year, (ii) the address of the property securing the mortgage, and (iii) the loan origination date.

The proposal also included a modification of extension of temporary minimum low-income housing tax credit rate for non-Federally subsidized buildings.

The chairman’s modification establishes a 4-percent minimum credit rate for acquisition of existing housing that is not federally subsidized. Any existing housing that is also financed with tax-exempt bonds is considered federally subsidized for this purpose and therefore is not eligible for the 4-percent minimum credit rate. This minimum credit rate only applies to the acquisition of existing buildings that receive housing credit dollar allocations, which are subject to caps from state housing credit agencies. The 4-percent minimum credit rate applies to buildings placed in service after the date of enactment with respect to which credit allocations are made before January 1, 2017.

In a letter to Chairman Orrin Hatch, (R-Utah) and Ranking Member Ron Wyden, (D-Or.), the Mortgage Bankers Association outlined its support for the three tax provisions.

1. Mortgage debt forgiveness

The first provision ensures that any mortgage debt that is forgiven by a lender will continue to be excluded from personal income. This prevents underwater homeowners from being taxed if their lender reduces principal or their home is subject to a so-called “short sale.” If Congress fails to act again, struggling homeowners who accept short sales and/or a loan modification offer will be faced with a substantial tax assessment. The prior law, if reinstated, would aid many loss mitigation efforts more successful and provide borrowers with the certainty that they will not be faced with a large, unexpected tax bill.

2. Tax deduction

Second, we believe that Congress should extend the tax deduction for mortgage insurance premiums paid by homeowners. For a $200,000 home, a homeowner will be able to deduct between $600 and $1,000 from their taxes. Reinstituting this deduction will greatly benefit the large number of homeowners, particularly first time home buyers, who cannot afford a 20% or greater down payment and who use mortgage insurance in order to purchase a home.

3. Low income housing tax credit

Finally, maintaining the minimum credit rate for affordable housing projects financed with the Low Income Housing Tax Credit will ensure continued production of affordable housing. Without such action, it will likely make it more difficult for affordable housing projects to secure necessary financing and could cause a slowdown in production of future projects.