New "Fiscal Cliff" Tax Provisions Impact on Real Estate
There is good news for real estate in the new “Fiscal Cliff” tax bill that Congress finally passed after extensive debating sessions.
The main points of the legislation as they relate to Real Estate are outlined below:
- Tax Relief for 1 year on Mortgage Debt forgiveness, deferment or cancellation.
- Tax Deduction for Mortgage Insurance Premiums extended through 2013.
- Extension of the Energy Efficient tax credit for existing home till the end of 2013
- Pease/PEP phase out for deductions
- Capital Gains Tax
- Estate Tax
Tax Relief on Mortgage Debt
Debt relief on loan modifications, short sales and foreclosures became taxable at the end of 2012 when the previous law, which was voted to encourage alternatives to foreclosure, expired. If this tax break had not been extended, it was feared that homeowners in difficulty would no longer agree to short sales because they would then be liable for tax. Principal Reduction on mortgages could also have been affected, and this has proved to be a very successful measure in staving off foreclosure.
Tax Deduction for Mortgage Insurance Premiums
The tax deduction for mortgage-insurance premiums, including premiums paid to the Federal Housing Administration and private mortgage insurers alike has been restored. The deduction expired at the end of 2011 but has now become retroactive for 2012 and is extended through 2013.
Extension of the Energy Efficient Tax Credit
This measure was an important stimulus for the remodeling market, however the $1500 maximum is now replaced with a $500 maximum, with no more than $200 attributable to windows. The $500 cap applies from the start of the program, so homeowners who have already claimed over $500 are no longer eligible.
Pease/PEP Phase Out
Named after Pease, the congressman who introduced it, this limitation has now been permanently repealed for lower income filers. High-income taxpayers face reductions of their personal exemptions and itemized deductions if their income exceeds $250,000 single and $300,000 joint return.
Capital Gains Tax
Capital Gains remains at 15% up to $400,000 single and $450,000 joint return. Above that amount the rate increases to 20%. The primary residence exclusion of $250,000 single and $500,000 joint does not change.
Estate tax is now exempt for individual estates up to $5 million and family estates up to $10 million; these exemptions are indexed for inflation. Above these amounts the tax increases by 5% to 40%.
The housing markets recovery is more secure now as two important major tax provisions remain. Congress did not change the mortgage interest deduction and it extended tax relief for at least the next year on mortgage debt forgiveness.The extension of these tax breaks is positive for home values. With less foreclosures, "shadow inventory", we should see a continued slow rise in housing prices. Capital gains tax remaining at 15% is also positive for the real estate investment market.
Read our article on the Fiscal Cliff Tax Bill - Mortgage Debt Forgiveness, or for more information on the tax implications on Real Estate of the “Fiscal Cliff” bill Contact Us at Chicagocondofinder.com or call Helaine Cohen at 312-953-0961.