The decisions have been made and Congress has passed the 2013 American Tax Relief Act. As a result, we did not plunge over the “Fiscal Cliff.”
With this new law, many are asking me, “How does the Fiscal Cliff/American Tax Relief Act affect Real Estate in Charleston, SC?” In answer to this question, there are four major areas that are going to affect South Carolina homebuyers/homeowners in 2013.
1. Good News – Mortgage Forgiveness Debt Relief extended through 2013 In 2007, a mortgage debt relief provision was added to the tax code that allowed people with underwater mortgages to negotiate a short sale with their banks without having to count the difference in cost as income. This was set to expire at midnight December 31st.
If Congress had not made any provisions, the tax code would have reverted to its pre-2007 treatment of mortgage principal reductions. Under this code, all principal balances written off were treated as ordinary income to the homeowners who received them. For example, if a bank wrote off a $200,000 debt to allow a short sale, the owner would have to count that $200,000 as taxable income.
A return to this tax code would have placed many families in great distress and disrupted short sales, a large portion of the real estate market right now. We would have seen a tremendous uptick in bankruptcies and foreclosures.
2. Deduction of mortgage insurance premiums
The new bill allows qualified borrowers who are paying PMI (Private Mortgage Insurance) on their loans to be able to write off those premiums as well as their mortgage interest on their federal tax returns. The bill retroactively extended this benefit to cover all of 2012, plus continues it through 2013. The write-off is available only to borrowers who have an adjusted gross income below $110,000.
3. Tax credits for energy-efficiency home improvements made in 2012 or 2013
If you have made any home improvements causing your home to be more energy-efficient in 2012 or plan to in 2013, this bill gives you tax credits. There are modest tax credits of $200 to $500 for owners who install energy-efficient windows, insulation and other upgrades designed to cut energy consumption.
4. Tax credits for new energy-efficient new houses
Builders and Contractors are now allowed to claim a $2,000 tax credit on new homes constructed in 2012 and 2013 that meet federally specified energy-conservation standards. The credits for U.S.-based manufacturers of energy-efficient refrigerators, clothes washers and dishwashers has also been extended through 2013.