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.
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