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The Fiscal Cliff Bill, what does it mean for real estate?

by Jessica Wormeck January 10, 2013

As the new year began, the U.S. Senate and House of Representatives were busy passing legislation to avert the so-called “fiscal cliff” with a bill that is quite favorable toward the housing industry. This is great news for those in the market to buy and/or sell a home. An outline of the bill’s real estate provisions from the National Association of Realtors follows.

A number of real estate tax breaks and credits have been extended, most notably:

1) Mortgage cancellation relief for homeowners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale or foreclosure sale for sellers and in a modification for owners, is extended for one year to Jan. 1, 2014. Without the extension, any debt forgiven would be taxable, which, for underwater households, represents a financial burden.
2) For filers making below $110,000, the deduction for mortgage insurance premiums is extended through 2013 and made retroactive to cover 2012.
3) The 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.

In addition, the tax exclusion for gains on the sale of a principal residence remains in effect for sellers, so only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers).