Looking for answers to questions about how the fiscal cliff deal affects you from a real estate point of view? Hopefully these bullet points will help:
Real Estate Tax Extenders
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
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 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Permanent Repeal of Pease Limitations for 99% of Taxpayers
Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.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 three 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 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 250/500k exclusion for sale of principle residence remains in place.
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.
For more information on how we can help you navigate the real estate market with these changes in effect, please contact us on 773.467.5300. We’re always happy to help you find the answers you need.