Overview of the Tax Provisions in the 2012 American Taxpayer Relief Act
I thought I would share a very informative overview of how the 2012 American Taxpayer Relief Act affects each of us. My CPA, Todd Hysjulien, pulled together this very informative summary. Enjoy the read and at the very minimum start saving for those incremental taxes! Here is a link to Todd’s website for your reference. Todd can be reached at 952-939-0910 if you have specific questions.
Overview of the Tax Provisions in the 2012 American Taxpayer Relief Act
The recently enacted 2012 American Taxpayer Relief Act is a sweeping tax package that includes, among many other items, permanent extension of the Bush-era tax cuts for most taxpayers, revised tax rates on ordinary and capital gain income for high-income individuals, modification of the estate tax, permanent relief from the AMT for individual taxpayers, limits on the deductions and exemptions of high-income individuals, and a host of retroactively resuscitated and extended tax breaks for individual and businesses.
Here’s a look at the key elements of the package:
• Tax rates: For tax years beginning after 2012, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets from the Bush tax cuts will remain in place and are made permanent. This means that, for most Americans, the tax rates will stay the same. However, there will be a new 39.6% rate, which will begin at the following thresholds: $400,000 (single), $425,000 (head of household), $450,000 (joint filers and qualifying widow(er)s), and $225,000 (married filing separately). These dollar amounts will be inflation-adjusted for tax years after 2013.
• Payroll tax cut is no more: The 2% payroll tax cut was allowed to expire at the end of 2012.
• Estate tax: The new law prevents steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation). However, the new law also permanently increases the top estate, gift, and GST rate from 35% to 40% It also continues the portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse. All changes are effective fore individuals dying and gifts made after 2012.
• Capital gains and qualified dividends rates: The new law retains the 0% tax rate on long-term capital gains and qualified dividends, modifies the 15% rate, and establishes a new 20% rate. Beginning in 2013, the rate will be 0% if income falls below the 25% tax bracket; 15% if income falls at or above the 25% tax bracket but below the new 39.6% rate; and 20% if income falls in the 39.6% tax bracket. It should be noted that the 20% top rate does not include the new 3.8% surtax on investment-type income and gains for tax years beginning after 2012, which applies on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income. So actually, the top rate for capital gains and dividends beginning in 2013 will be 23.8% if income falls in the 39.6% tax bracket. For lower income levels, the tax will be 0%, 15%, or 18.8%.
• Personal exemption phaseout: Beginning in 2013, personal exemptions will be phased out (i.e., reduced) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers). Taxpayers claim exemptions for themselves, their spouses and their dependents. Last year, each exemption was worth $3,800.
• Itemized deduction limitation: Beginning in 2013, itemized deductions will be limited for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).
• AMT relief: The new law provides permanent alternative minimum tax (AMT) relief. Prior to the Act, the individual AMT exemption amounts for 2012 were to have been $33,750 for unmarried taxpayers, $45,000 for joint filers, and $22,500 for married persons filing separately. Retroactively effective for tax years beginning after 2011, the new law permanently increases these exemption amounts to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately. In addition, for tax years beginning after 2012, it indexes these exemption amounts for inflation.
• Tax credits for low to middle wage earners: The new law extends for five years the following items that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2012: (1) the American Opportunity tax credit, which provides up to $2,500 in refundable tax credits for undergraduate college education; (2) eased rules for qualifying for the refundable child credit; and (3) various earned income tax credit (EITC) changes.
• Cost recovery: The new law extends increased expensing limitations and treatment of certain real property as Code Section 179 property. Under the new law, the Section 179 property limitation is increased to $500,000 for years 2012 and 2013, subject to a phaseout (i.e., gradual reduction) once capital expenditures exceed $2,000,000. It also extends and modifies the bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012, in tax years ending after that date.
• Tax break extenders: Many of the “traditional” tax extenders are extended for two years, retroactively to 2012 and through the end of 2013. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes, the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers, and the research credit.
• Pension provision: For transfers after Dec. 31, 2012, in tax years ending after that date, plan provision in an applicable retirement plan (which includes a qualified Roth contribution program) can allow participants to elect to transfer amounts to designated Roth accounts with the transfer being treated as a taxable qualified rollover contribution.
If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call us at 952-939-0910.
Housing Industry Skates Through Cliff Deal
The housing market and the housing industry have escaped a potential blow on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget morass.
A bill passed by Congress on Tuesday to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.
Chief among them is one that provides an additional year of relief for troubled homeowners selling their properties. Without action by Congress, those homeowners would have faced big tax bills if they completed “short sales”—those in which the lender agrees to allow the borrower to sell the home for less than the outstanding mortgage amount.
In the past, forgiven debt has typically been considered taxable income. But in 2007, Congress exempted homeowners from treating some forgiven mortgage debt that way as part of an effort to encourage alternatives to foreclosure.
“An extension of the tax break is positive for home values by reducing the number of foreclosures and helping more troubled borrowers stay in their homes,” wrote Jaret Seiberg, an analyst with Guggenheim Securities. “That means less supply on the market.”
Another move that should benefit some homeowners is the restoration of a tax deduction for mortgage-insurance premiums, including premiums paid to the Federal Housing Administration and private mortgage insurers alike. That deduction had been absent for a year after expiring at the end of 2011. In 2009, 3.6 million taxpayers claimed this deduction, according to the National Association of Home Builders.
“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” wrote Issac Boltansky, a Washington analyst with Compass Point Research and Trading.
The housing industry also dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage-interest tax break. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.
The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.
These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)
However, analysts still believe the mortgage-interest deduction could be altered as Congress continues to look for ways to save money. “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will…dodge Congressional scrutiny going forward,” Mr. Boltansky wrote.
Source: WSJ Blog
Pacific Union Ranked Third in Bay Area Sales
We’re pleased to announce that the San Francisco Business Times has rankedPacific Union International as the Bay Area’s third-largest residential real estate firm in its annual Book of Lists, published this week.
It’s the second year in a row that Pacific Union placed third on the list, rising from fourth in 2011.
Pacific Union’s Bay Area offices posted $2.29 billion in gross sales in 2011, the measure that the Business Times used to compile the list. That’s an increase of $250 million from 2010.
Pacific Union is the premier luxury real-estate brand in Northern California. We’re known for our neighborhood expertise, our team of talented real estate professionals, and our unflagging commitment to our clients. We don’t define “luxury” by the price point of a home — we define it by the quality of our people and our unparalleled service.
The company is locally owned, with more than 450 real estate professionals in 21 offices in the Greater Bay Area — more than any other independent real-estate firm.
We offer a full range of personal and commercial real-estate services: buying, selling, relocation, mortgages, insurance, and property management.
$34.5 million for an unfinished house on Billionaires Row in San Francisco
Tech mogul David Sacks has just paid $34.5 million for an unfinished house on Billionaires Row in San Francisco’s Pacific Heights neighborhood, making it the most expensive home ever sold in the city.
Sacks, who previously co-founded PayPal and a genealogy service called Geni.com, is CEO of Yammer Inc., a San Francisco-based business social networking service that he co-founded and sold this year. A movie producer in the past as well, Sacks has previously shown a taste for the finer things, throwing a lavish party for his 40th birthday in Los Angeles at the $125 million Fleur de Lys mansion, with guests decked out in 18th Century attire.
Sacks and his wife, Jacqueline, are reportedly buying a 17,500 square foot home and 6,000 square foot guest house house at 2845 Broadway Street — a stretch of road on which Oracle CEO Larry Ellison and members of the Getty clan also own abodes. It was previously owned by Peter Sperling, who works for the University of Phoenix, which his father founded.
The five story home has ten rooms, four bathrooms and was originally listed unfinished for the astronomical price of $65 million, and it has been on and off the market for about six years.
The Sperlings bought the house as part of a two-parcel site or $32 million in 2002, the cost of construction for the property exceeded $20 million, and it will cost $8 million to $16 million to finish.
SocketSite in November reported that the property had apparently sold for $20 million based on the transfer tax paid, but Trulia says local “in-the-know” brokers say a portion of the sale will be recorded as alternative personal property for tax reasons and the actual price is $34.5 million.
What does the SF tech boom mean to residential real estate?
Tech companies like Pinterest and Square are increasingly choosing San Francisco over Silicon Valley for office space, and Twitter’s move to the grungy Mid-Market neighborhood has spurred a slew of new leases there.
But how will all of this new tech activity downtown affect San Francisco’s already tight housing market?
“Thus far, the primary push has been on rental units, which are up about 12 percent this year,” said Patrick Barber, president of Pacific Union International’s San Francisco region. “(The activity) has really pushed up the price of rentals.”
As newer tech companies mature, early employees with generous salaries and stock options may be even more likely to invest in San Francisco real estate than high-tech workers who commute to Silicon Valley.
Already, tech workers are snapping up some of the city’s priciest properties. Apple executive Jonathan Ive made headlines in September when he bought a $17 million home on Pacific Heights’ Gold Coast, and Zynga CEO Mark Pincus purchased a $16 million home nearby during the summer.
Meanwhile, easy commutes south and proximity to employee shuttle stops have made neighborhoods like Noe Valley and the Mission red-hot housing markets.
Barber predicted that other neighborhoods like the already-popular Hayes Valley will become even more sought-after as more start-ups move into downtown San Francisco.
“Hayes Valley, with the coming down of the Central Freeway, already has amazing infrastructure and has undergone gentrification and beautification,” Barber said. “That will only increase as the Mid-Market area strengthens and people move residential.
“Any time you’re close to the bus routes of the Googles and the Apples, those home values have gone up,” he added. “Now that the Mid-Market’s going up, you’re going to see real estate developers going in there and doing infill projects. You’re just going to see economic growth in those areas.”
WHAT IS SPURRING TECH GROWTH IN SAN FRANCISCO?
San Francisco leads the nation in tech job growth, according to data from real estate services firm CBRE cited in a recent USA Today article.
“Current growth is about double the rate of the next two fastest-growing markets of New York City and Silicon Valley, a boost that’s lifted the city’s tech jobs to more than 36,600, or 13% higher than the dot-com peak in 2001,” the article stated.
Part of the appeal stems from the city’s six-year payroll tax exemption for companies creating jobs in redevelopment zones like the Mid-Market area. In addition, rates per square foot of office space are now considerably lower in San Francisco than in downtown Palo Alto, Menlo Park, and other Peninsula locations popular among start-ups – and the city has better availability as well.
The phenomenon echoes a national and even transatlantic trend of high-tech businesses moving from suburban office parks to cities, which tend to attract the newest generation of workers who favor living in the urban core and biking or riding public transit to work.
Moving to the city has become increasingly easier for tech companies, thanks in part to the changing nature of technology itself. Companies are now less likely to need loads of space for hardware and huge engineering teams, according to a recent Wall Street Journal article.
And, of course, start-ups like being around other start-ups – meaning San Francisco seems poised to remain in the limelight at least for a while.
“San Francisco has definitely become the center of activity — it’s definitely become the hotbed of a lot of exciting start-ups,” Pulse CEO Akshay Kothari told USA Today. “It’s a very strong pull right now.”
Source: PacUnion.com
San Francisco Monthly Market Update
In San Francisco, 41 percent of homes on the market were in contract in November, the highest level in years, continuing a trend we’ve seen through most of 2012.
The most active price points were for homes selling for $1 million or less: 47 percent in contract for homes priced from $500,000 to $750,000, followed by $750,000 to $1 million (41 percent) and $100,000 to $500,000 (45 percent).
Looking at individual districts, District 9 (Bernal Heights, Mission Bay, South Beach, and SoMa) and District 10 (Bayview, Excelsior, Outer Mission, and Visitacion Valley) were the most active, with 91 and 65 single-family homes and condominiums under contract, respectively, followed by District 5 (Cole Valley, Eureka Valley, Haight-Ashbury, and Noe Valley) with 60 homes in contract.
Marin County- Monthly Market Update
Marin County is one of the few regions where buyers are in the driver’s seat. Six cities had fewer than 25 percent of homes in contract in November — Larkspur (0 percent), Fairfax (7 percent), Ross (17 percent), Sausalito and Tiburon (both 20 percent), and Belvedere (22 percent). The countywide average of homes in contract was 35 percent, up from 32 percent in October.
Among homes priced under $1 million, 35 percent were in contract, led by Ross (100 percent) and Corte Madera and Kentfield (both 67 percent). An average of 20 percent of homes selling for $1 million or higher were in contract, down from 23 percent the month before. All but one city had in-contract rates below 25 percent, the exception being Kentfield (29 percent).
Tahoe Monthly Market Update
The average price of homes for sale in the Tahoe/Truckee region topped $600,000 in November, the highest level in more than a year.
The number of homes for sale continued to slide since a peak in mid-summer, and the number of homes sold also fell, but at a slower rate. The upside to those numbers is that the market absorption rate – also known as months’ supply of inventory — jumped higher in November. That’s good news for potential buyers, who now have a wider range of properties to choose from.
The region had 10 percent of single-family homes in contract in November, the lowest rate in almost year, while condominiums in contract rose to 12 percent, matching the highest rate in at least two years.
Millennials: “Renter Nation” just a myth
The housing crisis looms especially large for younger adults–those aged 18-34 years old–who’ve only been thinking seriously about housing in these recent years of boom and bust. They have no memory of the decades when home prices rose modestly but steadily, or when mortgage rates were 7%, or up to 10%. These younger adults had a particularly rough recession: their unemployment rate peaked at 10.6% in October 2009, compared with 10.0% for adults overall, and many put off the decision to buy or rent their own home, and instead doubled up with roommates or lived with parents. This age group really matters for the housing market: their decisions about forming households and homeownership directly affect housing demand.
Our survey shows these Millennials haven’t been permanently scarred by the recession. Few have written off homeownership. Among 18-34 year-olds, 72% say homeownership is part of their personal American Dream–same as for the adult population overall. And the vast majority of young renters plan to own: 93% of 18-34 year-old renters plan to purchase a home someday. Older renters are more likely to say they’ll never buy than these young renters are. And, 43% of these younger adults are homeowners already. That leaves very few young adults who rent today and plan to rent forever.
However, despite these long-term aspirations, younger adults see a very different near-term housing market in their crystal ball. Consumers, regardless of age, expect both rents and housing prices to rise in 2013; they also expect more inventory, both for rent and for sale, and higher mortgage rates. Younger adults, though, have a harder time imagining price increases and higher mortgage rates than older adults who have lived through more years of rising prices and high rates. Just 37% of Millennials expect prices to rise in the next year, and 22% expect prices to fall
Source: Trulia
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