The American Taxpayer Relief Act of 2012 will permanently extend most of the 2001 and 2003 tax cuts. This legislation prevents a fiscal drag of approximately $600 billion in 2013, which would have been large enough to push the current weak economy into further recession. That in turn would have reduced demand for both owner-occupied and renter housing and threatened the ongoing recovery for home building. That outcome has been prevented for now. However, 2013 may be a year in which comprehensive tax reform is under legislative consideration.
The following items in the Relief Act are of interest to housing stakeholders and home builders:
Homeowner Tax Items
· Extends through the end of 2013 mortgage debt tax relief; important rule that prevents tax liability from many short sales or mitigation workouts involving forgiven, deferred or canceled mortgage debt
· Deduction for mortgage insurance extended through the end of 2013; reduces the cost of buying a home when paying PMI or insurance for an FHA or VA- insured mortgage; $110,000 AGI phase-out remains
· Extends the section 25C energy-efficient tax credit for existing homes through the end of 2013; important remodeling market incentive, although the lifetime cap remains at $500.
· Reinstates the Pease/PEP phase-outs for deductions; for married taxpayers with AGI above $300,000 ($250,000 if single), the Pease limitation reduces total itemized deductions by 3 percent for the dollar amount of AGI above the thresholds. This is a negative change for some high cost areas, but should only have small impacts. Example, a married household with $350,000 AGI would be $50,000 above the limit and must reduce their Schedule A total by $1,500 raising their taxes by about $500. Only a share of that would be due to the MID.
Multifamily Tax Items
· Extends the 9 percent LIHTC credit rate for allocations through the end of 2013; absent the credit fix, the LIHTC program would suffer a loss of equity investment for affordable housing projects
· Extension through the end of 2013 of base housing allowance rules for affordable housing
Also noteworthy are items that are not in the act, including an itemized deduction cap or a defined fast-track tax reform process. Nonetheless, the return of the Pease rules suggests that items like the mortgage interest deduction will be under debate in 2013.
The resolution of the fiscal cliff now gives way to a series of mini-cliffs due to the need to raise the debt ceiling, establishing government spending levels and deal with the sequester. Over the long run, the future of housing demand and interest rates in particular, will be affected by how Congress and the President solve the nation’s long-run deficit challenges.
Source: Jan. 07, 2013 RISMedia and NAHB blog article, Eye on Housing.Posted by Breckenridge Associates Real Estate on