Tax Provision

Description

C.A.R. Policy

Mortgage Interest Deduction

Interest paid on home mortgages is allowed to be deducted.  There is a cap of $1 million for the mortgages (more than one mortgage can be used).

"That the staff be directed to develop appropriate educational materials by the March meetings to be utilized in defense of the mortgage interest deduction in general and to rebut existing proposals to limit or restrict the availability of the mortgage interest deductions". (Jan 1989)

Capital Gains Exclusions

Property owners may realize a capital gain tax free of $250,000 ($500,000 for married couples filing jointly) on the sale of their primary residence if they pass the ownership and use requirements; this includes that the property is 4 units or less, a primary residence, and that it was owner-occupied as such for at least 24 months of the previous five years.

"That C.A.R., in conjunction with N.A.R., support federal legislation to institute a $500,000 married couple/$250,000 individual home sale capital gains tax exclusion available to taxpayers every two years". (October 1996)

Exceptions to 2-year Rule on Capital Gains Exclusion

Homeowners may still qualify for all or part of the capital gains exclusion rule, even if they sell early, if the reason for selling their home is for; 1) job change, 2) heath problems, 3) unforeseen circumstances, or 4) terrorist attacks

Second Home Conversion Rules Concerning Capital Gains Exclusions

In 2008 one of the offsets included in H.R. 3221 was the closing of a tax loophole concerning the conversion of a second home to a primary residence and the capital gains exclusion. Now the capital gains exclusion only applies to gain received once the house became a primary residence

Any gain earned prior to January 1, 2009 would not be affected by this provision and there are extra exclusions for extended military service (with limitations) as well as change of employment, health conditions or other unforeseen circumstances (not to exceed an aggregate period of two years).  There is also an allowance of 5-years of gain if a property is converted from a principle residence to a second home.

The new formula to calculate the gain allowed to be included in the capital gains exclusion would be: Profit from the sale multiplied by the number of days the home was a primary residence over the number of days the home was owned.

Second Home/Vacation Home Interest Deduction

Interest paid on second home mortgages is allowed to be deducted. There is a cap of $1 million for the mortgages (this includes the mortgage of the primary residence).

Deduction of Real Estate Taxes

Property owners are allowed to deduct their real estate taxes, including property taxes.  Non-itemizers are allowed to deduct up to $500 ($1000/joint return) in property taxes.

"That C.A.R. seek to amend those positions of proposed tax plans that are detrimental to homeownership and investment in real property, including: State and Local Taxes (including property taxes) - attempt to achieve full or partial deductibility." (Oct 1985)

Prepayment of Real Estate Property Taxes

One may increase their real estate tax deduction by prepaying some real estate taxes for the next year and claiming it on the present year’s return. 

Home Equity Loans

Interest paid on a home equity line of credit, or second mortgage on the equity built up in a home may be tax deductible up to $100,000 of a loan.

Estate Tax

The Economic Growth and Tax Reconciliation Act of 2001 set in motion a ten-year plan to increase the exemptions from the estate tax and will lead to full repeal in 2010.  Effective in 2010, the estate tax will be repealed. In the interim, the amount of the exclusion will gradually increase from $675,000 to $3 million and the estate tax rates are gradually reduced from a maximum of 50% to a maximum of 45%.  However, in 2011, the estate tax laws will revert to that laws that were in effect on June 6, 2001.

That C.A.R., in conjunction with NAR, seek an estate tax regimen that provides a stepped-up basis for all inherited assets.  If the scheduled 2010 estate tax repeal is rescinded, that C.A.R support a revision that
a) permits stepped-up basis,
b) taxes all assets in an estate at the same rate (i.e., rates would not depend on the type of asset),
c) excludes an amount comparable to the $5 million exclusion that would be in effect in 2010,
d) provides estate tax rates that, as nearly as possible, are the same as the tax rate for long-term capital gains, but in no event higher than the 2006 individual tax rates of the same income structure, and
e) indexes the estate tax exclusion amounts for inflation.

Death Basis Step-up

When a homeowner passes away their property basis is adjusted to the market-value at the time of death.

"That C.A.R., in conjunction with N.A.R., preserve the "stepped-up basis" provision of current tax codes irrespective of modification or elimination of Estate Tax" (Jan. 2001)

Reverse Mortgage

Money paid out by a reverse mortgage is not subject to income tax nor does it count as earnings that can reduce Social Security benefits.

Private Mortgage Insurance

Private Mortgage Insurance on primary residences is tax deductible (with income limitation through 2011) and is also deductible on rental property (no limitations or sunsets).

“That C.A.R., in conjunction with NAR, ‘OPPOSE’ the introduction of income limitations on the proposed mortgage insurance deduction provisions of the Internal Revenue Code.” (June 2003)

FIRPTA

To make sure that the tax is properly collected from the sale of a house by a foreign citizen, the government requires that the seller of a house over $300,000 must fill out a non-foreign affidavit.  If the form is not filled out completely and there is a tax liability on the house and the buyers may be liable for the sellers’ tax liability from the sale of the real property.

That C.A.R. in conjunction with N.A.R., "SUPPORT" legislation that would permit a seller to provide the information required by the Foreign Investment in Real Property Tax Act (FIRPTA) to escrow or another settlement provider as an alternative to providing that information to the buyer. (January 2005)

Mortgage Insurance Deduction

Mortgage insurance premiums (PMI) on private mortgage insurance, FHA insurance, and VA and Rural Housing premiums are currently tax deductible through December 21, 2010.  The deduction is available to those with less than $100,000 adjusted gross income on a joint or single tax return ($50,000 for married filing separately) and phases out for incomes above $110,000 ($55,000 for married filing separately).  Individuals who claim the deduction are not permitted to prepay premiums. 

That C.A.R., in conjunction with NAR, "OPPOSE" the introduction of income limitations on the proposed mortgage insurance deduction provisions of the Internal Revenue Code. (June 2003)

Deduction for Mortgage Points

Points on a loan that act as interest and not expenses or charges for services are deductible.

"That C.A.R., in conjunction with N.A.R., support HR 544 (Boehlert), a bill which would suspend IRS rulings restricting the deductibility of loan points on mortgage refinances." (March 1987)

Deduction for Refinance Points

Points paid on refinances are amortized over the life of the refinanced loan; if a second refinance is done, than the remaining point deduction from the first refinance could be deducted in full the year of the second refinance.

Purchase Expense Basis Increase

A tax basis may be increased by adding on the closing costs to the purchase price.

Causality Loss Deduction

The IRS allows limited deductions for non-reimbursed loss from damage to a home from fires, storms, or other so-called "casualties".

Tenants in Common

Tenant in Common is a form of co-ownership in real estate which, due to a 2002 IRS ruling, has increasingly been sold as private placement securities offerings. TICs sold as securities generally meet the Supreme Court's definition of an investment contract. Though TIC securities are real estate, securities laws and regulations prohibit securities broker dealers from either directly or indirectly compensating non broker dealers.

Medical Home Improvements

The cost of a home improvement that qualifies as a non-reimbursed medical expense is deductible up to the amount that it does not increase the value of the home.

Improvement Basis Increase

The cost of improvements that add to the value of a home, prolong its useful life, or adapt it to new uses may be added to the basis of a home.

Rental Expenses

Homeowners who rent part of their primary residence are allowed to take deductions for a portion of general home maintenance expenses and expenses that relate directly to the rental portion of their home.

Carried Interest

Under most real estate partnerships when a private equity partnership is developed there are two categories of participants.  There is the general partner (GP) and the limited partner(s) (LP).  The LPs are the ones who contribute the capital to fund the projects.  The GP either puts up a small (usually 1-2%) amount of capital, or none, but handles the financial dealings of the partnership and brings their expertise and experience to the project.  When that property is sold, the profits are divided, primarily among the LPs.  However, there is a common practice in partnerships, including real estate partnerships, that gives the GP a portion of the profits.  This is separate from his annual management fee which covers his salary and overhead.  This part of the profit is known as carried interest and is taxed at capital gain rates instead of income rates. 

Employee Housing Downpayment Assistance

Due to the high cost of housing, employee downpayment assistance programs are becoming more frequent among employers as a means of attracting and retaining employees.  However, under current law there are no incentives for employers to offer this benefit and this type of assistance is often treated as taxable income to the employee. 

That C.A.R., in conjunction with NAR, support income tax-based incentives for employer-assisted housing as part of a housing affordability strategy. (January 2007)

Energy, Natural Disaster, and Natural Resource Tax Incentives

Tax incentives that help property owners traditionally help REALTORS® and their clients.  They provide incentives for sellers to make necessary or helpful upgrades and they assist buyers in knowing that if improvements are needed or wanted there is some assistance to mitigate the costs.  There is a concern though that the addition of these tax incentives could lead to the taking of other current property tax incentives as a way to off-set the loss in revenue that these incentives would create.

That C.A.R., in conjunction with NAR, support tax credits, deductions, or similar tax incentives designed to encourage owners to make improvements to real property in order to conserve energy, mitigate potential damage from natural disasters and/or satisfy environmental goals related to natural resources and wildlife. Support for tax legislation containing such incentives will be balanced against the competing pressures of real estate-related tax provisions that could be created to "pay for" these incentives. (June 2007)

Vacation Rental Expenses

In some cases, costs incurred renting the homeowners vacation home part-time may be deductible.

Capital Improvement Depreciation

Improvements to income property, such as replacements of the roof, rain gutters, windows, and furnace, are considered capital improvements and depreciated at the same rate as the property they are attached to.

Tenant Improvements Depreciation

Since 2005, in the yearly tax-extenders bill there has been a one year provision that allowed for a landlord who made improvements to leased property in a nonresidential building to amortize the cost of those improvements over 15 years instead of the life of the underlying property, i.e. 39 years expired on December 31, 2005. 

Affordable Housing Tax Credit

Would allow developers and investors who construct or substantially rehabilitate housing for low-and moderate-income families for purchase to claim up to 50% of the cost over a five year period. 

Home Office Expenses

Business owners, and in some cases employees, who use a portion of their home as the regular and exclusive place of business may deduct a portion of their homeownership expenses for business purposes.

"That C.A.R. support state legislation conforming state tax law to the 1997 Federal Taxpayer Relief Act which expanded the definition of "principal place of business". (June 1997)

Charitable Deduction

It is possible to receive a charitable deduction for your primary residence while you're alive and living there by donating the remainder interest in the residence after you pass away, or after a specified amount of time.

Vacant Land Qualification

The capital gains exclusion applies to vacant land owned and used as part of homeowners' principal residence if the land is sold two year before or after a qualifying sale of the principal residence.

Deduction for Moving Expenses

If the move falls within the distance (more than 50 miles) and time rules, then non-reimbursed moving expenses may be deductible for a new job.

Tax-Free Rental Income

Rent collected on principal and second homes rented for less that 15 days during the taxable year is not subject to tax.

Business Owners

Small Business Expensing

Small businesses may deduct up to $100,000 the costs of business property, other than real estate, in the year purchased, this provision phases out when investment reaches $400,000.

Business Expense Deductions

Business expenses that are both "ordinary" and "necessary" may be deductible business expenses.

Business Use of Car

A per-mile tax deduction may be used for business miles driven, or one may calculate the business percentage of the total use of the car and deduct that portion of the total expense of the car.

Health Insurance Deduction

Almost all self-employed health insurance in now 100% deductible.

"That C.A.R. SUPPORT state legislation conforming state tax law to the 1997 Federal Taxpayer Relief Act which increased the deductibility of health insurance premiums for self-employed individuals from thirty-percent to one-hundred percent". (June 1997)

Rent Deduction

Rent paid for a property used in a business is tax deductible, including a percentage of one's primary residence and rent paid to cancel a business lease.

"That C.A.R. support state legislation conforming state tax law to the 1997 Federal Taxpayer Relief Act which expanded the definition of "principal place of business". (June 1997)

Income Tax Deduction

Corporations or partnerships can deduct state and local income taxes.

Employee's Pay

Generally a business owner may deduct the pay given to employees for the services they perform including employer contribution to social security and Medicare taxes.

Investments

REMIC (Real Estate Mortgage Investment Conduits

REMIC acts like a "pass-thru entity" and issues securities that are sold on the secondary market secured by residential and commercial mortgages.

That C.A.R. in conjunction with NAR, "SUPPORT" the liberalization of real estate mortgage investment conduit (REMIC) rules to make commercial loan securitization more attractive to commercial borrowers. (June 2004)

1031 “Like-Kind” Exchanges

Owners of investment property may exchange it for another investment property and defer capital gains taxes until the gain is realized.

That C.A.R., in conjunction with N.A.R., support policy eliminating the 45-day identification period for 1031 exchanges. (January 2004)

That C.A.R., in conjunction with NAR, look into the issue of accommodators/qualified intermediaries of 1031 exchanges (including but not limited to oversight and/or regulation) and how to safeguard exchanging taxpayers and our industry members vis-a-vis the practice of accommodators/qualified intermediaries. (June 2007)

Real Estate Investment Trust (REIT)

A REIT is like a real estate mutual fund, and is classified as a "pass-thru entity" allowing the avoidance of a double taxation on dividends that are issued by them.  This distinction has created a separation of how REIT dividends are taxed (included in adjusted gross income) and taxed corporation stock dividends (15%).

MRB (Mortgage Revenue Bonds)

An MRB is a tax-exempt bond issued by state and local governments and governmental housing finance agencies to finance the sale or renovation of single family homes.

"That C.A.R. reaffirm its support for an extension of Federal MRB and MCC (Mortgage Credit Certificates) authority and recommends that C.A.R., in conjunction with N.A.R., support HR 2640 which would extend this authority until December 31, 1992." (July 1987)