Fiscal Cliff: Mortgage Forgiveness Act & Interest Deduction Extended

I received this email in my inbox this morning from my local Realtor board. While I know not everyone is happy with the provisions of this bill, there are several that as they pertain to real estate, that were important wins:

“Late last night the U.S. House of Representatives voted 257-167 to pass the U.S. Senate’s plan to avert the ‘fiscal cliff.’ President Obama has said he will sign the bill into law. Congress agreed that current tax rates will stay the same for households that make less than $450,000 annually, and $400,000 annually for individual filers. This coupled with the fact that there will be no change to capital gains taxes, the National Association of REALTORS® (NAR) believes there will be no change financially for the vast majority of home buyers and sellers.

There are many facets that will affect each and every American’s pocket book, but we wanted to update you on a few key issues that affect REALTORS®.

1. Congress excluded a capital gains tax increase for sale of a principle residence of up to $500,000 ($250,000 for individuals).
2. The Mortgage Forgiveness Debt Relief Act of 2007 was extended. This provides relief to troubled borrowers when some portion of mortgage debt is forgiven. This averts the crisis many short sales were facing with the New Year.
3. Congress extended deductions for mortgage insurance premiums, state property taxes, and local property taxes.
4. The mortgage interest deduction was left untouched, continuing tax relief for homeowners.

Not all aspects of the fiscal cliff have been dealt with, and come February Congress will be required to re-engage the issue to deal with the national debt ceiling and required federal budget cuts.”

More info I have obtained on the deal that was reached:

• Individual Taxpayer Tax Rates: Permanent extension of current policy (tax rates of 10%, 25%, 28% and 33%) up to $400,000 for singles, $450,000 for married couples. Personal exemption calculations will also remain.
• Capital Gains: Capital gains tax will be 15% of the gain for individuals earning up to $400k (singles), $450k (married); For those wage earners higher than $400k/$450k the capital gains tax will be 20%. There is no capital gains tax on individuals below the 25% tax bracket.
• Credit for Construction of Energy Efficient Properties: Extends through 2013 the credit for properties being built which meet the standards of energy consumption and built to the standards of the 2003 International Energy Conservation Code.
• Low income housing tax credit: Investors who put low income housing into service prior to the end of 2014 will receive a minimum tax credit of 9%

Please seek advice from a tax professional before making any decisions based on the above info – this is only what I understand the bill to state. Tax brackets and income levels can have a tremendous impact each homeowner so it’s important to look at each situation individually.