On January 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff,” the bill will be signed shortly by President Barack Obama. Below is a summary of real estate related provisions in the bill.
- Real Estate Tax Extenders
- Mortgage Cancellation Relief is extended for one year to January 1, 2014. That's good news for home sellers that need to do a short sale.
- Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
- 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
- The 10% tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
- Return of the “Pease” limitations on itemized deductions for high income filers
Under the agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers, but will be re-instituted for high income filers.
These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. The thresholds have been increased and 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.
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 starting in 2003 and were completely eliminated in 2010-2012. NAR has never had an official position on Pease limitations.
The good news is that the re-institution 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 MID that can be claimed.
- Capital GainsCapital Gains rate stays at 15% for those the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20%. The 250/500k exclusion for sale of principle residence remains in place.
- Estate Tax
The first $5 million dollars 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.