Obama Signs New Bill To Avoid "Fiscal Cliff"

On January 1, both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2. (Source: National Association of Realtors). The new bill states that the tax rates would remain the same for most households and the extension of mortgage cancellation relief.

Here is the summary of Real Estate related provisions in the bill: (Source: National Association of Realtors).

• 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.

Anytime a lender cancels, or forgives a debt, that debt is considered as income to the debtor.  Thus, making that income taxable unless an exception applies. Without the extension of Mortgage Cancellation Relief, the debt forgiven will be taxable.

The Mortgage Insurance Premiums are payments for the insurance policy which compensates in case the borrower defaults on a mortgage loan. The deduction for Mortgage Insurance Premiums is considered a tax break and it is applied for mortgage insurance policies issued on or after January 1, 2007.  The deduction is extended through 2013 and made retroactive to cover 2012.

Capital Gains stays at 15% for a maximum of $400,000 (for individuals) and $450,000 (for joint filers). Beyond those amounts, any gains will be taxed at 20%. The $250/$500K exclusion for sale of principal residence remains in place.

The Estate tax will be exempted for the first $5M in individual estates and $10M for family estates.  After that the rate will be at 40%, up from 35%.

The new bill will avert the effects of "fiscal cliff".  Homeowners can still enjoy some of the tax benefits from the previous year.  Although this is a temporary fix, the new bill has put the minds of the Homeowners at ease - at least for this year.

If you have any questions, please don't hesitate to contact me.