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Obama Vows to Keep Mortgage Tax Deduction

If reelected, President Obama would not touch the mortgage interest tax deduction for middle class families, he said in his acceptance speech for the democratic party's nomination for President.

Instead any tax increases or deficit reduction measures would be aimed at house holds earning more than $250,000 per year.

The Republicans have pledged to eliminate the mortgage -interest deduction as part of their party platform. Although critics have said abolishing the tax break would make it more difficult for middle-class individuals to purchase homes, the Republicans say it would help pave the way for income and corporate tax cuts.

New Federal Tax on Investment Income 

On January 1, 2013, a new 3.8% Federal tax on the investment income of individuals, estates, and trusts is scheduled to come into force. This new tax will be imposed on interest, dividends, annuities, royalties, rents, capital gains, and certain other items.

The tax will be in addition to all otherwise applicable Federal, state, and local income, transfer, and other taxes. This post focuses on the tax's application to owner-occupied residential property (including single-family homes, condominiums, and cooperative apartments).1  Although the tax is complicated, here are a few simple rules to guide you:

  • In general, if an individual's home is sold, the 3.8% tax will be imposed on the gain "recognized" by the seller (and not on the gross purchase price).
  • As you are aware, a limited portion of an individual's gain on the sale of a primary residence (generally, $250,000 for a single individual, and $500,000 on a joint return) may not be taxable for ordinary Federal income tax purposes.  The same rule applies for purposes of the new tax.
  • If the seller's "adjusted gross income" (with certain modifications) is below specified levels (generally, $200,000 for a single individual, or $250,000 on a joint return), the seller may be exempt from the new tax.
Sellers should consult with a qualified tax adviser to determine the application of the new tax, as well as the application of all other tax rules, to the seller's particular circumstances.

1 Different rules may apply to other types of property, including second homes and investment properties.
 

1 comment:

  1. What will Obama's caps be on mortgage deduction?

    Chris
    Owner Cel Financial Services
    IRS Registered Tax Return Preparer
    Registered bonded California CTEC Tax Preparer
    http://www.taxprepfillmore.com/

    ReplyDelete

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