PMC Mortgage Lender's Blog

Congress passed and President Obama signed into law on December 17, 2010, HR. 4853, the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010.

The National Association of Realtors (NAR) has produced a summary of the provisions that specifically affect real estate investment and operations. The law extends Bush-era tax rates and a host of other expired and expiring provisions.

According to NAR, the bill is not “paid for” so there are no revenue raisers taken from real estate or other industry groups. Here are some of the notable highlights:

Tax Rates: Bush-era tax brackets from 10% to 35% will remain the same for the 2011 and 2012 tax years, but the backdoor rate increase that affected upper income taxpayers is repealed for 2010, 2011 and 2012.

Capital Gains: The tax rate of 15% will remain for assets sold or disposed of during 2011 and 2012. The depreciation recapture tax rate remains at 25%. Small investors with incomes in the 10% or 15% brackets will have a capital gains and dividend rate of 0%.

Energy–efficient New Homes Credit: The expired tax credit for builders and manufacturers of new energy-efficient homes has been renewed through 2011.

Energy–efficient Existing Homes: Homeowners who make energy-related improvements to existing homes now have one extra year to complete their projects. This tax credit provision is now extended through December 31, 2011 for adding qualified Energy Star replacement windows, doors, skylights, roofing and some heating and cooling equipment. Homeowners beware. NAR says the 2011 rules are “tougher than they were in 2010.”

Mortgage Insurance Premiums: NAR states “the provision that allows a deduction for individuals with less than $100,000 (with a phase-out up to $110,000) is extended through December 31, 2011.”

Estate Tax: During 2010, the estate tax was repealed, but heirs who did receive assets from an estate were required to use the burdensome “carryover basis” to determine the value of assets received. Prior to 2010, heirs received the asset with a “stepped-up basis” which measures the value of the asset at fair market value. Using “carryover basis,” heirs were required to know when the decedent acquired his or her assets and at what price.

“This legislation,” according to NAR, “revives the estate tax as of January 1, 2010, with an exclusion of $5 million ($10 million for a couple) and a maximum rate of 35%” effective through December 31, 2012. Prior to 2010, the exclusion was $3.5 million with a maximum tax rate of 45%. Executors and heirs of those who died during 2010 may elect to pay no estate tax, but the assets will be subject to “carryover basis rules.” That election will not be available for those who die after 2010.