By Robert Freedman, Senior Editor, REALTOR® Magazine
The fiscal year 2012 budget that the Obama administration released yesterday would pare back most housing and community development programs, including jobs-rich community development block grants, implement a planned hike in the annual FHA mortgage insurance premium, and even take a third stab at a twice-rejected proposal to trim the value of itemized deductions, including the mortgage interest deduction, available to upper-income households.
The Obama administration's fiscal 2012 budget request
These are all important matters that will bear watching as lawmakers take up their budget resolution and decide which proposals to keep and which ones to scrap or modify. But one thing the budget doesn’t do is propose reducing the value of MID by changing it into a credit. That change to MID was one of the recommendations of the president’s bipartisan deficit reduction commission, which released its final report in December.
In fact, the deficit commission very much got short shrift in the budget proposal. Its signature recommendations, including scaling back entitlements by raising the age of Social Security beneficiaries, among other things, were left out, leaving those high-profile decisions for another day.
To be sure, the president’s budget wields a sharp knife when it comes to cuts. It proposes cuts to 200 programs, including the majority of the programs administered by the U.S. Department of Housing and Urban Development, which saw its budget cut by almost 3 percent. Most of the budget savings across the spectrum of government programs come from a five-year freeze on discretionary domestic spending (largely everything except military and entitlements), which is estimated to produce $400 million in savings. Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
The law enacted by President Obama last week to extend the tax cuts of President George W. Bush includes a number of provisions of importance to real estate, but it also leaves out at least one provision NAR opposes. In short, it’s largely a continuation of the status quo for the near future. The one potential drawback is in its cost.
President Obama signs tax extension bill. White House photo
Since it’s not paid for with any program cuts, it stands to put upward pressure on interest rates in the future and could lead to more pressure on lawmakers to find ways to cut the federal deficit, which in turn could make tempting targets out of the mortgage interest deduction and other programs through which the federal government has historically shown its support of home ownership.
On the plus side, the law leaves out a proposal that’s been talked about for close to two years now, and that’s to tax as ordinary income rather than as capital gains the carried interest of general partners in investment partnerships. That proposal, which is targeted at hedge fund managers, would hurt real estate investment partnerships disproportionately, because the vast majority of investment partnerships are for real estate, and NAR has opposed it. So, that issue is neutralized for now.
In general, the law keeps in place existing tax brackets (which go from 10 percent on the low side to 35 percent on the high side) and the existing capital gains rate, which will remain at 15 percent. Depreciation recapture tax rates remain at 25 percent. No new limitations are created for Section 1031 like-kind exchanges. And the existing 15-year cost recovery period for leasehold improvements is retained. Same with existing bonus depreciation treatment: assets with a cost recovery period of 20 years or less are eligible for 100 percent depreciation in the year the assets are placed in service. This rule applies to all assets placed in service on or after Sept. 8, 2010, and before January 1, 2012. Eligible assets placed in service during 2010 will qualify for a 50 percent bonus depreciation allowance.
You can get more details on these provisions in an initial analysis by NAR Government Affairs on REALTOR.org.
Other provisions of note: Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
Shortly after the federal government enacted sweeping healthcare reform earlier this year, there was considerable concern over a last-minute addition to the legislation: a 3.8 percent tax on investment income of upper-income households to help shore up Medicare. The tax takes effect in 2013.
Among the concerns expressed among consumers and business people, including real estate professionals, both then and today, is that the tax amounts to a transfer tax on real estate. Not true, NAR Director of Tax Policy Linda Goold says.
Here’s how the tax works. For individuals earning $200,000 a year or more and married couples earning $250,000 a year or more, certain investment income above these income levels might be subject to the 3.8 percent tax on a portion of that income. I say “might” because whether the tax applies or not depends on many factors having to do with the kind and amount of the investment income the household receives.
Investment income includes capital gains, dividends, interest payments, and, for those who own rental property, net rental income.
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