Tuesday, January 29, 2013
The American Taxpayers Relief Act of 2012
Happy New Year! Good news bears repeating, so I’d like to recap and clarify a few things I informed you of earlier this month.
The American Taxpayers Relief Act of 2012 was signed into law on Jan. 2. The law includes a provision to extend the Mortgage Forgiveness Debt Relief Act, which will for one more year exempt the taxation of mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale or loan modification (including any principal reduction). However, the California exemption expired at the end of 2012, so forgiven mortgage debt is considered taxable state income for now.
We recognize this could impact short sales in California, and that’s why the California Association of Realtors (C.A.R.) is sponsoring SB 30(Calderon, D-Montebello). SB 30 will conform state law to the federal law passed earlier. Upon passage of SB 30, the measure will be effective retroactive to Jan. 1, 2013.
Congress made permanent the repeal of the “Pease Limitations” on itemized deductions – including the mortgage interest and property tax deductions – for all taxpayers whose adjusted gross income (AGI) falls below $300,000 for married couples filing jointly and $250,000 for individuals. Pease Limitations will be re-instituted for high income filers above those threshold amounts. This means a taxpayer's itemized deductions will be reduced by 3 percent of the amount of his or her AGI that exceeds the threshold amount. For example, a married couple with an AGI of $400,000 would be $100,000 over the threshold; the couple’s itemized deductions would be reduced by $3,000 which is 3% of $100,000. No matter how high a taxpayer's AGI, he or she cannot lose more than 80 percent of the total itemized deductions. Those most limited by Pease will be extremely high income filers who do not have many itemized deductions.
Thanks to the work of thousands of members of the NAR for contacting their Legislatures to inform them of the importance of these two items for the health of the National Housing economy.
Please contact your State Representative to let them know how important it is that California conforms to the National Law for Mortgage Forgiveness Debt Relief by urging them to vote for SB30!
And know that your local Realtors are busy doing the same!
Posted by Carla B. Reeves at 1:50 PM