By end of 2012 and January 2013, we have heard so much about “Fiscal Cliff”. Here’s how it may affect Frisco Texas residents and money issues for the State of Texas.
Bottom line, here is what it amounts to: Less money for you to take home for EVERYBODY, not just those making over $400K or couples making over $450K:
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Holiday Payroll tax expired with the Cliff:
Social security tax was originally at 6.2% but with the Holiday Payroll tax set 2 years ago, it was reduced to 4.2%. The “Cliff Deal” did not include saving this Holiday Payroll tax which affect ALL American workers. Americans still end up paying more in social security taxes.
This means if you did not get a pay raise in 2013, your take-home paycheck will still be less. Less spending money to you, less spending money flows into the economy.
If you make $30,000 per year, you will take home $50 less per month, or $600 per year. Or if you are a family making $110,000 per year, you will pay $2,200 more in taxes this year. $2,200 is a significant sum for a family earning $110K per year. That means one child’s college fund, or a family vacation disappearing.
Here in Frisco TX, it may mean having to find another $2,200 from another portion of your budget to pay for half your property taxes for your $225K Frisco TX home.
In case you were curious, the loss of revenue in Social Security ($215Billion for both years) did not come from cut spending elsewhere on the budget. Hence, this payroll tax cut adds to the national debt that we must eventually pay for.
Other Real Estate Tax Impact to the Frisco TX Real Estate Homes Market:
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Mortgage Cancellation Relief Act
It was extended through January 2014. What this bill does is to forgive the debt of homeowners who sold short, owing the difference do not have to claim the difference as “income” on their 2012 Income Tax return. This mortgage cancellation amounts up to $ 2 Million for married couple filling jointly and $1 Million single or married couple filling separate.
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Long term Capital Gain Tax
The Long term capital gain tax increased to 20% from 15%. This affects investors and landlords who may want to buy or sell real estate investments. Hence, the 1031-exchange becomes more important now.
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Mortgage Insurance Premiums
Mortgage insurance premiums became tax-deductible in 2011 for taxpayers making $110,000 or below. The Fiscal Cliff deals includes excluding this through the end of 2013 and retroactive to include 2012.
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Pease (Limitation on Itemized Deduction)
The limitation on Itemized Deduction is named after Congressman Pease who helped created it. It reduces most taxpayers itemized deductions by 3% when adjusted gross income AGI exceeds around $177,550, up to 80% of the itemized deduction in the phase-out threshold.
For examples: Taxpayer with AGI $250,000. ($250,000 – $177,550 = $72,450) x 3% = $2,173.50, up to a maximum of 80% of itemized deductions.
Note: Pease limitation does not apply to casualty and theft losses, gambling losses, investment interests and medical expenses.
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Capping charitable giving
Along the same sentiment, by capping the itemized deduction, this may have a significant impact to non-profit organizations who depend heavily on the ability to provide tax receipts for taxpayers for write-offs in charitable giving. Although high net worth giving may appear in huge amounts, but most of not-for-profit agencies receive their incomes from non-high net worth givers.
The threshold is set for married couples filling jointly making $300,000 and above and singles over $250,000. This does not affect income earners less than the threshold. All of their charitable giving and itemized deductions are not subject to this limitation.
Every non-profit agency such as your school alumni, school band, local homeless shelters, churches, religious non-profits, etc. will be affected by this cap.
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Personal exemption phase-out
Personal exemption will increase marginal tax rate. Bottom line, if you make over $250,000 as a single tax payer or $300,000 married filling jointly. In 2012, the personal exemption is $3,800. The phaseout personal exemption may be reduced 2% for $2,500 (or parts of $2,500) for the affected taxpayers.
Here in Frisco TX, every taxpayer and every homeowner will definitely feel it in their wallets, with less money to spend. However, Frisco TX continues to be the desired relocation destination in the Dallas metroplex. Wealth continues to pour in and the City of Frisco continues to attract businesses to select Frisco to be their business choice of location.
If you had driven pass the Stonebriar District during the Christmas and December Holiday season, you will witness the wealth pouring into Frisco.
With that, Frisco TX homes continue to be highly desirable for home buyers. Many sellers see multiple offers within the first few days when coming on the market. In 2012, the housing market in Frisco TX seen very positive signs. It is expected for 2013 to share the same momentum.
Back to the Fiscal Cliff,
Summary: Washington is our own biggest threat to the economy. In a couple of months, we will yet again scramble to address the Debt Ceiling at the end of February. A few things are for sure: Washington is not done with what they need to do. There will be more tax cuts affecting everyone, not just the high-income earners.
Note: Please seek the advice of professional tax advisor to see how the tax laws may apply to you. 3:16 team REALTY is a locally-owned Frisco TX real estate company, not a tax consultation service.
