Welcome home, and a happy 2013 to all! This week, a bit of information to share from our friends at the National Association of Realtors. On Jan. 1, both the Senate and House passed H.R. 8, legislation to avert the "fiscal cliff." Below is a summary of real estate related provisions in the bill. Now that we have an idea of what we are working with, I believe we can move forward.
• Mortgage cancellation relief is extended for one year to Jan. 1, 2014.
• Deduction for mortgage insurance premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012.
• Leasehold Improvements: 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
• Energy efficiency tax credit: The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Under the agreement, so called "Pease limitations" that reduce the value of itemized deductions are permanently repealed for most taxpayers, but will be reinstituted for high-income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time.
Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3 percent. That amount is then used to reduce the total value of the filer's itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer's itemized deductions.
These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.
Capital gains rate stays at 15 percent for those at the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20 percent. The $250,000/$500,000 exclusion for the sale of a principal residence remains in place.
The first $5 million in individual estates and $10 million for family estates are now exempted from the estate tax. After that, the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.
Of course this brief cannot tell all and many planning decisions are complex, so take time to consult with your tax and legal counsel to clarify the rules and laws effecting your decisions.
Courtesy of the National Association of Realtors, "Issue Brief Real Estate Provisions in 'Fiscal Cliff' Bill."
Butch Elich is a Realtor with RE/MAX Properties of the Summit with over 20 years of experience to share with buyers and sellers from around world. Visit him at www.Elich.com or call (800) 806-9518 with any real estate or mountain community questions.