2013 Real Estate Tax Update

If you are wondering what happened as a result of the fiscal cliff debate in Congress the past several weeks, here is the bottom line as it pertains to the world of real estate.

• Mortage Cancellation Relief was extended for through 1/1/2014.

• The deduction PMI or MIP (mortgage insurance premiums) for tax payers 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.

• 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Taxpayers Under the agreement so called Pease Limitations that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.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.

• Capital Gains rate stays at 15 percent for those in 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 $250,000/$500,000 exclusion for sale of principal residence remains in place.

• Regarding Estate taxes, 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.

Nancy Puder is the broker and owner of SignatureProperties, a real estate sales and management company in Arroyo Grande, CA.  You may contact Nancy at Nancy@NancyPuder.com or (805)710-2415 Your calls are always welcome!