With the passage of The American Taxpayer Relief Act of 2012 on January 1, 2013, much of the focus, and for good reason, was directed at the tax rates and the budget sequestration associated with the “Fiscal Cliff”. However, as we move forward in 2013, it is important to recognize the real estate specific provisions contained in the law, which merit further consideration. Listed below is a summary of some of the key real estate provisions of The American Taxpayer Relief Act of 2012:
- Extension of the Mortgage Forgiveness Debt Act to January 1, 2014. With this extension, qualifying individuals obtaining mortgage debt forgiveness through short sales and loan modifications on their principal residence will continue to be able to exclude the forgiven debt from their income for tax purposes (up to $2,000,000).
- Extension and retroactive application for 2012, allowing for the deduction of mortgage insurance premiums for taxpayers making less than $110,000.
- Extension and retroactive application for 2012, allowing for 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties.
- Extension and retroactive application for 2012, allowing for a 10% tax credit (up to $500) for energy improvements made by homeowners to their principal residence.
- Phase out of certain itemized deductions (including the mortgage interest deduction) for taxpayers earning more than $250,000 (above $300,000 for those filing a joint return). [See Jenifer Schembri’s article on American Taxpayer Relief Act of 2012]
- Change in long term capital gains tax rates to 20% for those individuals making more than $400,000 ($450,000 for those filing a joint return). The capital gains tax rate remains at 15% for those below this threshold. [NOTE: Effective January 1, 2013, as part of the Affordable Health Care and Patient Protection Act, there is now an additional 3.8% capital gain tax applicable to those individuals making more than $200,000 ($250,000 for those filing a joint return.)]
The above is merely an overview of some key real estate provisions. With the ever-changing political arena, there are likely to be more changes in the future. Blalock Walters, P.A. is committed to staying on top of these changes and on how they will affect the real estate market and our clients. Should you have any questions regarding the foregoing, please feel free to contact Matt Plummer at firstname.lastname@example.org or (941) 748-0100.