There are several key provisions within the recent “fiscal cliff” deal that we all need to keep in mind as property owners. Let’s take a quick look.
• Mortgage Cancellation Relief Act. This had been high on the horizon for real estate professionals as the Dec. 31, 2012, deadline of this act loomed. In short, the amount of debt being cancelled by a lender when a property owner “sold short” would have been considered taxable income without this act. The deadline has now been extended to Jan. 1, 2014. That is great news for a lot of Americans whose properties are still worth less than they owe.
• Deduction for mortgage insurance premiums. The deadline on this provision was extended through 2013 for tax filers earning below $110,000.
• Leasehold improvements. Also extended through 2013, this allows for a 15-year straight-line cost recovery for certain commercial improvements and retroactively includes 2012.
• Energy efficiency tax credit. Qualified energy improvements on existing homes (up to $500) is extended through 2013 and retroactively includes 2012.
• Capital gains. Stays at a rate of 15 percent for those at the top rate of $400,000/$450,000 and 20 percent on any gains after that. The $250,000/$500,000 exclusions on the sale of a principal residence remains in place.
• Estate tax. The first $5 million in individual and $10 million for family estates are now exempted from the estate tax. The rate after that increased from 35 percent to 40 percent.
• Mortgage interest deduction. There was no change to the MID, thankfully.
Home ownership is a vital part of the American Dream. With so many losing their homes to foreclosure and short sale, it should be noted that surveys still show a strong desire by most Americans to own their own home.
Sixty-seven percent of American households are owner occupied and 80 to 90 percent of all federal income taxes are paid by homeowners.
Have you ever heard someone say their dream was to rent a home? Of course not. According to the National Association of Realtors, the average homeowner’s wealth has ranged from 31 to 46 times that of the average renter.
Be sure to contact your tax adviser for specific details regarding your situation. This information is provided solely as an reference and to start the discussion with your tax expert.
• Jim Haisler is CEO of Heartland Realtor Organization, a nonprofit trade organization providing products, services and education to the public and approximately 800 real estate professionals throughout northeastern Illinois. He can be reached at 815-459-0600.