Northern Nevada Tax Changes For 2013
As
happens every year at this time, there are changes in laws, policies and
procedures that affect Northern Nevada real estate. The beginning of a
new year is a convenient time for government to implement change, a
measurable break off point, especially when it comes to matters
involving taxation.
There
are some esoteric changes this year that don't affect many, but will
have a significant impact on those that they affect. The first is the
3.8% tax tucked away in the ObamaCare bill. It is estimated that this
might affect 2-3% of home sellers going forward. To be affected by this
tax you must: 1. Have a gain of $250,000 - $500,000 (single or married)
over the current exclusion of $250,000-$500,000 on your primary
residence. 2. Have an annual income of $250,000. 3. You or your
accountant must then plug the amount of gain above the exclusion into a
"formula" to see if it's taxable.
If it is
then you will be taxed at 3.8% on that amount. Because the 3.8% tax is
not actually a tax on the sale of real estate, but is a tax on a capital
gain, it is calculated when you do your income tax figuring, not at the
time of the sale. Example: A married couple must have a $500,000 gain
over their $500,000 exclusion on their primary residence, and earn over
$250,000 to have exposure to this tax. The tax will be paid in 2014 for
2013.
Some of
the tax changes for 2013 are actually extensions of existing policy.
There was much consternation in the real estate industry while the good
folks in Washington D.C. were figuring out our tax future. The real
estate elements in the resulting H.R. 8 legislation include: 1. Mortgage
Cancellation Relief extended to January 1, 2014. This is very important
for those involved in a Short Sale or Foreclosure of their primary
residence. It is an essential item for the continued recovery of the
real estate economy in our opinion. 2. Filers making below $110,000 will
be happy that the Deduction for Mortgage Insurance Premiums was
extended and made retroactive to cover 2012. 3. The Energy Efficiency
Tax Credit of 10% up to $500 for energy improvements made to existing
homes is extended through 2013 and made retroactive to cover 2012.
Capital
gains rate will stay at 15% for those at the top rate of $400,000
individual and $450,000 joint return, but gains above those amounts will
be taxed at 20%. Those that fit into this income category will likely
either hold their asset, or put it in to a tax-deferred exchange in
accordance with IRS Code 1031 to defer the gain. This will have a mixed
effect on the investment real estate market. As values rise investors
may wish to change their assets, i.e.- sell in California and move to
Nevada, so we will likely see many exchanges again as we did in the
early and mid-2000's.
The
Estate Tax went up from 35% to 40% for those amounts over $5 million in
an individual estate and $10 million in a family estate. Be sure to work
with your CPA to have your estate in order to minimize the tax
consequences to the best of your ability should you have an estate that
exceeds those amounts.
Our Advice:
Taxes are the price we pay to live in this great country of ours. It
isn't always a pleasure to write the check, but the good news is that if
you are paying taxes you are making money.
After Christmas comes the taxes. Maybe we should use the 5th of July for new taxes.
When it comes to choosing professionals to assist you with your real estate needs... Experience is Priceless!
