Category: rebounding economy

How The Fiscal Cliff Legislation Affects Real Estate

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NAR Government Affairs summary of “fiscal cliff” legislation as passed by the House and the Senate. President Barack Obama has signed the agreement into law.

Real Estate Provisions in “Fiscal Cliff” Bill

Below is a summary of real estate related provisions in the bill:

Real Estate Tax Extenders
• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014
• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
• 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
• 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.

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time. Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

Capital Gains

The Capital Gains rate stays at 15 percent for those at the top rate of $400,000 (for individuals) and $450,000 (for those filing a joint return). After that, any gains above those amounts will be taxed at 20 percent. The 250/500k exclusion for sale of principle residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.

Source: National Association of Realtors

Housing Market Update Reads Positive

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by Kenneth R. Harney – Tue, Sep 1, 2009

Name just about any housing market or economic indicator you can think of, and the odds are good that last week it was much better than the preceding week or month.

Start with resales of existing homes. They were up by 7.2 percent in July over June, according to the National Association of Realtors. That was the fourth consecutive — and by far the largest — monthly increase so far this year.

And check out new home sales. They were up by nearly 10 percent in the latest report from the Commerce Department. The gain was the biggest monthly change in sales since February of 2005. It pushed inventories of unsold new houses to their lowest point in 16 years.

Consumer confidence also was sharply higher, according to the Conference Board’s widely watched index, up seven points in August over July. Lynn Franco, director of the Conference Board’s consumer research center, said “consumers (are) more upbeat in their short-term outlooks for both the economy (as a whole) and the job market.”

The latest Case-Shiller home price index even turned positive! Case-Shiller’s national composite was up 2.9 percent comparing the first quarter of 2009 with the second quarter. That was the first quarter to quarter price improvement in more than three years, and we all know how spooky and bearish Case-Shiller has been throughout the housing downcycle.

Fully 18 of the 20 major markets tracked by Case-Shiller were positive for the quarter, even though on a year-to-year comparison basis, prices in the second quarter of 2009 were still 15 percent below the second quarter of 2008.

Mortgage applications and interest rates continued to be favorable as well. Total applications jumped by seven and a half percent last week, according to the Mortgage Bankers Association.

Rates remained low and stable: 5.2 percent for 30 year fixed rate loans, and 4.6 percent for 15 year mortgages.

Equally significant, some prominent analysts are saying the recession either officially ended sometime during the month of August, or will do so shortly, maybe in September.

The Mortgage Bankers Association’s top forecaster, Orawin Velz, said the national gross domestic product or GDP likely will RISE in the third quarter — ringing down the curtain on the deepest recession in decades.

Now, does this all mean that happy days are here again and the housing market can only go up as the recession comes to an end? Not with unemployment still above 9 percent and three million foreclosures forecast for the year.

Look for a slow-mending recovery, but one that looks like it will be led by housing. Today’s Local Market Conditions Report

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