Dear Congress of the United States, all is forgiven. My concern that the real estate market would be an orphan adrift on a raft of foreclosed homes has not come to pass. This week the House and Senate passed H.R. 8, legislation to avert the so-called “fiscal cliff.” A delightful term, which was widely misused as “the physical cliff” by Barbara Walters and others. Following are real estate-related provisions of the bill, which the President has ratified. So we’re good for another year.
The interest on your home mortgage remains deductible, so long as you itemize deductions on your tax return. Check with your CPA, but mortgage interest costs you money and is therefore income for your bank or mortgage lender and those guys will get to pay the taxes on that payment to them. There was some realistic concern that the interest deduction might not make the cut, but when push came to shove in Washington, this topic was apparently not even on the table.
The capital gains rate remains at 15 percent for individuals earning less than $400,000 per year and couples earning less than $450,000. Any gains above these amounts will be taxed at 20 percent. The $250,000 individual/$500,000 married couple exclusion on the profits from the sale of a principle residence remains in place, but when one exceeds these parameters, one needs a CPA to sort out the Obama Care fees on that transaction.
Mortgage Forgiveness Debt Relief Act has been extended to January 1, 2014. In place since 2007, the act provided a tax break for homeowners who struggled through financial hardship such as a foreclosure, and were granted mortgage debt forgiveness. More than a quarter of all real estate transactions involve distressed properties. In a letter to Congress, the NAR said. “Homeowners shouldn’t be forced to pay a tax on money they’ve already lost with cash they never received.” So the short sale continues to live among us, at least through next January.
Mortgage insurance (which is an insurance company’s guarantee that you will not welsh on your mortgage, and in turn for that guarantee a lender will give you a mortgage with less than 20% down) that mortgage insurance has been deductible for only the past few years. Congress has decided that this deduction (for filers making below $110,000) should be extended through 2013 and made retroactive to cover 2012.
Another topic Congress touched on is the 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties. In their wisdom this is extended through 2013 and made retroactive to cover 2012.
I’m not exactly sure why the 10 percent tax credit (up to $500) for homeowners for energy efficiency improvements to existing homes was extended through 2013 and made retroactive to cover 2012. But I’m sure the guys who sell air conditioners had much to say through their lobbies on this topic.
“Pease limitations” that reduce the value of itemized deductions have been permanently repealed for most taxpayers (but will be reinstituted for high-income filers). “Pease” limitations will only apply to individuals earning more than $250,000 and joint filers earning more than $300,000. The thresholds are indexed for inflation so will rise over time. Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20% reduction. Raise your hand if this applies to you or anyone you know.
First enacted in 1990 and named for Ohio Congressman Don Pease, who proposed the idea, the limitations continued throughout the Clinton years. The limitations were gradually phased out starting in 2003 and eliminated in 2010. Reinstitution of these limits has far less impact on the mortgage interest deduction than a hard dollar deduction cap, percentage deduction cap or reduction of the amount of mortgage interest deduction that can be claimed.
Dane Hahn is a real estate professional serving Charlotte and Sarasota Counties. He can be reached at 941-681-0312 or at email@example.com. See him on the web at www.danesellsflorida.com.