Hello Wheaton! I have had many clients ask me how the agreement to the 'Fiscal Cliff' is going to effect thier taxes, specifically how it may effect deductions like mortgage payments. Well, some of the news is good, and some is not so good. The American Tax Relief Act of 2012, recently ratified by Congress included several provisions that will impact homeowners, sellers and buyers in the coming year. For example, the deduction for private mortgage insurance has been reinstated and is retroactive for premiums paid in 2012. A full deduction is available to single and married-filing-jointly homeowners with AGI of $100,000 or less, while married couples who file separately may write off 50 percent of premiums. Taxpayers with taxable income exceeding $100,000 may qualify for a partial deduction on a sliding scale.
[CLICK HERE to read, "Fiscal cliff bill extends real estate tax breaks," at Inman News, January 4, 2013.]
While the mortgage interest deduction currently is still available, it is one of many issues that will be hotly debated in coming months as the House and Senate negotiate government spending reductions and tax reform. You should be aware, however, that the recent fiscal cliff-saving tax bill eliminates up to 80 percent of total itemized deductions for single taxpayers earning more than $250,000; $300,000 for couples filing jointly.
The new tax bill also extends debt forgiveness to homeowners who are given principal forgiveness or undergo a short sale or foreclosure this year. This means they will not have to pay taxes on the amount of debt forgiven.
As in the past, home sellers who realize profits exceeding $250,000 (individual) or $500,000 (couple) from the sale of a principal home are required to pay capital gains taxes on the excess amount. The rub this year is that the capital gains rate has now increased to 20 percent for taxpayers with more than $400,000 in taxable income ($450,000 for married couples).
Even if you don’t earn enough to be subject to the higher capital gains rate, your home-sale profit still may get hit with the 3.8 percent Medicare tax starting this year. This particular tax, which was included in the Patient Protection and Affordability Act of 2010, applies to home sellers who earn more than $200,000 ($250,000 for couples filing jointly).
[CLICK HERE to read "The 3.8% Tax: Real Estate Scenarios and Examples," at NAR, January 1, 2013.]
And finally, the Consumer Financial Protection Bureau came out with new guidelines designed to protect homebuyers from “irresponsible mortgage lending.” The new rules require lenders to ensure that borrowers have the ability to repay their mortgage, essentially putting an end to loosey goosey practices such as the no-doc and interest-only loans.
[CLICK HERE to read, "New federal rules aim to curb risky mortgages," at US News & World Report, January 10, 2013.]
[CLICK HERE to read, "The CFPB's New Mortgage Rule: A Good Start, but Only a Start ," at Bloomberg, January 10, 2013.]
Feel free to give me a call if you’d like to discuss how your plans to buy or sell a home this year could impact your financial situation.
This information is not intended to provide specific legal or tax advice, nor promote, market, or recommend any tax plan or arrangement. Please consult a tax and or legal professional for guidance with your individual situation. The information and opinions of the links contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.