The U.S House of Representatives followed the U.S. Senate vote, passing the fiscal cliff bill as drafted by the Senate. The House voted 256 for, 166 against the measure.
In the process, legislators kicked the deficit can down the road for another two months.
President Barack Obama will sign the measure.
According to the National Association of Realtors (NAR), the “American Taxpayer Relief Act of 2012″ will keep tax rates unchanged for most households and extend some important mortgage relief and mortgage tax benefits.
“More than 98 percent of Americans and 97 percent of small businesses will not see their taxes go up. Two million out of work people…will continue to receive unemployment benefits, as long as they are out there looking for a job. The deficit is still too high. Cutting spending has to go hand in hand with further reforms to the tax code,” Obama said among other remarks in a statement following passage of the measure.
Capital gains tax benefits intact
NAR said the relief act extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.
The tax rate on capital gains would also remain the same, at 15 percent, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20 percent.
NAR said the exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains in effect, so only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers).
For the vast majority of home sellers, there is no change.
The bill also reinstates provisions that phase out personal exemptions and deductions for incomes over $250,000 for singles and $300,000 for couples.
Mortgage relief intact, extended
NAR said a number of what lawmakers call extenders are in the bill. Extenders keep in place expiring tax provisions.
That includes extending mortgage debt foregiveness relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, say, in a short sale or foreclosure sale for sellers or in a modification for owners.
Without the extension, any debt forgiven would be taxable, which, for underwater households, represents a major financial burden.
Mortgage debt forgiveness tax relief was set to expire December 31, 2012. It’s been extended for another year, until Dec. 31, 2013.
Along with an extension for the Mortgage Debt Forgiveness Tax Relief Act is an extension for the mortgage insurance tax deduction.
The mortgage insurance tax deduction expired in 2011. With passage of the fiscal cliff bill, the deduction is retroactive for 2012 and extended through 2013.
The fiscal cliff bill also retained deductions for state and local property taxes along with the long-time mortgage interest tax deduction, which, along with the other fiscal cliff bill provisions for real estate, are all important tax considerations for home owners and buyers.
In two other important provisions, the alternative minimum tax (AMT) is permanently adjusted for inflation, making it unnecessary for Congress to adjust it each year.
The AMT was enacted in 1969 to help ensure a minimum tax bill for high-income households that would otherwise minimize their taxes by shielding much of their income in deductions and using other tax strategies.
Because it was never indexed to inflation, AMT threatens to catch middle-income households in the tax, so Congress each year adjusts it. Now the adjustment will be permanent.
The other key provision is a change in the estate tax so that estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. Currently, the top rate is 35 percent.
On the other side of the fiscal cliff is hundreds of billions of dollars in automatic, across-the-board federal spending cuts, with a disproportionate share of the cuts affecting defense spending.
Legislators pushed back the deadline for those cuts for two months.