Mortgage Relief, Housing Market Fare Well in Fiscal-Cliff Extensions

Mortgage Relief, Housing Market Fare Well in Fiscal-Cliff ExtensionsThe mortgage interest deduction, a nearly sacred pillar of home affordability for a century, was mostly untouched in the fiscal-cliff legislation, a welcome move for the housing market.
Throughout the presidential campaign and in the weeks leading up to the “cliff” compromise, there were hints that new limits would be placed on the deduction that would affect middle-income homeowners.
Part of the tax code since 1913, the mortgage interest deduction enables borrowers to reduce their taxable income by the amount of interest paid on a loan (or loans) with a value of up to $1.1 million.
Under the fiscal cliff legislation, couples earning at least $300,000 may see a reduction in how much mortgage interest they can deduct.
But leaving the deduction alone for middle-income households was one of a handful of victories for the recovering housing market in the fiscal-cliff deal.
Another big win is the extension for one more year of the exception for “qualified principal residence indebtedness” under by the Mortgage Debt Relief Act of 2007. It spares additional taxes on forgiven mortgage debt that is typical in loan modifications and “short sales” to prevent foreclosures.
The exception allows homeowners to exclude from their income certain cancelled debt on their principal residence.
Here is a rundown of other provisions in the fiscal-cliff bill that could affect real estate holdings, either directly or indirectly, according to the National Association of Realtors:
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
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.
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 principle residence remains in place.
Estate Tax: 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.
• So-called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be re-instituted 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.

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