1/09/2013

Benefits of the New (and Extended) Tax Laws for 2013

Much has been written about the last-minute passage of the "fiscal cliff" issues by the federal government.  But, remember there are state level issues as well, some of which are still being worked on in California., specifically SB 30.
fiscal-cliff and housing
  • In 2007, the new law provided, for five years, incentives for sellers to accept short sales by, in many instances, forgiving taxes that would have been due for the forgiven debt amount.
  • Previously, when a lender forgave a portion of borrower debt, the forgiven amount was, in many instances, considered taxable income for the borrower.
  • This tax incentive for sellers to participate in short sales was just extended by Congress for another year, expiring January 1, 2014; however, California's exemption under the Mortgage Forgiveness Debt Relief Act expired at the end of 2012, and currently forgiven mortgage debt is taxable state income.  SB 30 (Calderon) has been introduced, and if and when passed by the California legislature, it will make California conform to federal law, and will be retroactive to January 1, 2013.
  • Not all debt is forgiven in every instance. Sellers should check with their tax consultant for exceptions. For example: Maximum amount that can be forgiven is $2,000,000. To be forgiven, the debt must have been used to buy, build or substantially improve their principal residence

  • Other housing-related provisions brought into effect with the new laws are:
    • A 10% tax credit up to $500 for homeowners' energy improvements to an existing home, and is retroactive for 2012.
    • Capital gains rates remain at 15% for incomes under $400,000 (individual) and $450,000 (joint); above those income levels gains will be taxed at 20%.  On sale of principal residence, the gains rate remains at $250,000 (individual) and $500,000 (joint).
    • An 2011 expired tax deduction for mortgage insurance premiums (MIP and PMI on loans) has been restored and is retroactive through 2012.
    • The new "Pease Limitations", per California Association of Realtors, are at "$300,000 for married taxpayers filing jointly and $250,000 for single taxpayers (i.e., a married couple with an AGI of $400,000 would be $100,000 over the threshold; the couple’s deductions would be reduced by $3,000 which is 3% of $100,000). No matter how high a taxpayer's AGI, the Pease reduction cannot exceed 20 percent of the amount of itemized deductions otherwise allowable for the year." These were named after Ohio Congressman Don Pease and were first enacted in 1990.
    • The first $5 million dollars in individual estates and $10 million for family estates are now exempt from the estate tax. After that, the rate will be 40%, up from 35%. The exemption amounts are indexed for inflation.
    • More at http://www.toptennewhomecommunities.com/blog/fiscal-cliff-bill-addresses-some-key-housing-issues/

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