Real Estate Tax Issues, Post Election

Whatever your position on the recent elections, now that they have been decided, there will be consequences concerning real estate tax issues.

First, there has been much confusion and discussion about a 3.8% real estate tax included in Obama Care. Now that President Obama has been re-elected, Obama Care is a certainty. With that said, there is a 3.8% tax in the bill and, while it is not specific to real estate, it does affect certain real estate transactions. The tax will affect only higher income demographics and will apply only for significant capital gains. (See prior entries for more specifics on this tax.)

Along with the tax described above, it is likely that new revenue will be required to avoid the fiscal cliff that is to occur by year's end if the government does not act. There are several revenue/tax options on the table which could affect many of you. Depending on your circumstance, you may want to let your elected officials know where you stand.

The mortgage interest deduction is likely in play and should be the most concerning to anyone who owns their primary residence and has a mortgage on the property. As interest is front-loaded on mortgages, the newer the mortgage you have, the greater advantage you receive from the deduction. While the deduction will likely remain, there is a good chance it will be reduced.

Similar to the 3.8% tax mentioned above, there is a capital gains exemption on your primary residence which is based on income levels and amount of gain. This exemption may also be modified or eliminated.

For anyone involved in a short sale, under tax law, the forgiveness of debt creates a taxable event and is considered income. Under current law, there is an exception for mortgage debt forgiveness relating to short sales. However, this exception is due to expire (I believe at the end of the year), so it is incumbent upon anyone engaged in a short sale to determine whether the exception will be in place at the time of your closing.

These are just a few financial issues to consider relating to the the sale of property.

Please keep in mind that I am not an accountant, tax attorney, or financial planner. This information is cursory in nature and anyone concerned with the issues mentioned above needs to consult an expert for details.