Late yesterday, the U.S. House of Representatives passed the Senate legislation to avert the "fiscal cliff," and President Barack Obama is expected to sign the legislation soon. Under the agreement, tax rates would remain the same for most households and mortgage cancellation relief is extended. The exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains in effect, so only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers).

A number of 'extensions,' which keep expiring tax provisions in place, are also included in the bill. Of most interest to real estate, the bill would extend mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale or foreclosure sale for sellers and in a modification for owners. Without the extension, any debt forgiven would be taxable, which, for underwater households, represents a financial burden. Also extended are deductions for mortgage insurance premiums and for state and local property taxes, which, along with the mortgage interest deduction, are important tax considerations for home owners and buyers.