Housing-Related Tax Provisions Expiring at the End of 2013

With the government shutdown/debt ceiling conflict resolved, at least for the next few months, it is a good time to revisit the policy debate that preceded it – the fiscal cliff.

In January, a number of real estate related tax provisions were extended for another year. At the end of 2013, these provisions are set to sunset. And for now, there appears to be little likelihood of a “tax extenders” bill being enacted before the end of the year.

The following are housing or real estate related tax provisions that expire at the end of 2013:

Housing Rules

  • Mortgage debt forgiveness tax relief: rule that prevents tax liability arising from many short sales or mitigation workouts involving forgiven, deferred or canceled mortgage debt.
  • Deduction for mortgage insurance: reduces the after-tax cost of buying a home when paying PMI or insurance for an FHA or VA-insured mortgage; $110,000 AGI phase-out.
  • The section 25C energy-efficient tax credit for existing homes: remodeling market incentive with a lifetime cap of $500.

Business Rules

  • The section 45L new energy-efficient home tax credit: allows a $2,000 tax credit for the construction of for-sale and for-lease energy-efficient homes in buildings with fewer than three floors above grade.
  • The 9% LIHTC credit rate: absent the credit fix, the LIHTC program would suffer a loss of equity investment for affordable housing projects; in place for 2013 allocations.
  • Base housing allowance rules for affordable housing: income definition rules.
  • The section 179 small business expensing limits: offers cash flow and administrative cost benefits for small firms, with limits of $500,000 for deductions and $2 million for capital purchases.
  • The section 179D deduction: provides a deduction for some energy-efficient upgrades to multifamily and commercial properties.
  • New Markets Tax Credit: no new allocations of this community development tax credit.

At this time, it would be prudent for homeowners and housing stakeholders to assume that all of these tax provisions will sunset at the end of 2013. If these rules are extended, it will almost certainly occur retroactively through legislation passed later in 2014. And of course, comprehensive tax reform could change all tax rules substantially.

Finally, while not expiring at the end of 2013, it is worth noting that the section 25D 30% credit for installation of solar, wind, fuel cell, or geothermal residential power production property expires at the end of 2016. This credit can be used in connection with both remodeling and new construction and is claimed by the homeowner.



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