Whew! We made it. Barely. Through a series of last-minute sessions, Congress somehow managed to hash out and pass the Taxpayer Relief Act of 2012. In doing so, they narrowly averted the fiscal cliff. So…what does that mean, exactly? Will it have any effect on Memphis real estate or the investors what are buying investment properties here in Memphis?
Well, it means a lot of things, but our purposes we're going to briefly discuss a few of the real estate issues addressed in the Act and note that it is hard to tell exactly how it is going to effect Memphis real estate investors. I will say that before you start packing your bags for a country whose official language has no word for "fiscal" and the only cliffs are those you can BASE jump from, relax: The news is mostly good. Several of the key points of the Act seem to point toward Congress's recognition that bolstering the housing market is vital to the continued growth of the economy. For a more in-depth discussion of the ins and outs of the deal, check out this guide from Forbes Magazine, but for now, Memphis Invest is here with some of the salient real estate points.
1. Forgiven Mortgage Debt
A tax break for cancelled mortgage debt that was set to expire on December 31 was extended to the end of 2013. This allows struggling homeowners -- those facing foreclosure, short sales, or loan modifications -- to avoid having to pay taxes on outstanding debt. No matter what many of us think about this, it is vital to help get the pipeline of underwater and behind on payment properties through the pipeline without completely crushing a weak recovery. This is an extension of the original Act passed in 1997 and is set to expire January 2014. So while this is an extension, it is only for one year and we'll see what Congress decides to do one year from now.
2. Mortgage Insurance Premium Deduction
Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012.
Taxpayers with an adjusted gross income (AGI) of less than $100,000 who itemize their deductions can deduct all of their mortgage insurance premiums. Those making between $100,000 and $110,000, the deduction is phased out by 10% for each additional $1,000. Those whose AGI is above $110,000 are ineligible for the deduction. I know that last statement will not effect many of the real estate investing clients that we work with, but it is worth noting and we expect more changes to this rule. As always, make sure you check with your CPA or other tax preparer to be sure you qualify for and apply this correctly.
3. The MID Survives
The mortgage interest deduction (MID) was left largely untouched, but this could change as lawmakers continue to make changes in the tax code over the course of the coming months. This is the biggest unknown for real estate investors and the one thing that could have the biggest impact on a housing recovery. We will continue to watch and keep everyone up to date if there are any changes.
There are also many other changes and extensions that are affected by this particular bill. Including energy efficient tax credits that some investors may want to take advantage of as well as capital gains changes and estate tax changes and short term fixes for the alternative minimum tax. Some real estate investors will also be effected by 15-year straight line recovery of capital improvement costs on qualified commercial investing projects. It will be interesting to note how the changes effect the real estate investment market and what positives come out of the extension.
Which part of the Taxpayer Relief Act of 2012 are you most "relieved" about? Did Congress do a good job of dealing with real estate issues in the Act? Let us know your thoughts in the comments!