It's amazing to me how quickly the year is flying by, so I thought I would revisit topics that are important to be addressed sooner than later.  Before you know it, it will be New Years Eve again (a funny statement to be making in July....), and the regrets of tasks that we procrastinated on will be upon us if we don't take action now.  This can apply to so many things, but since I am your Real Estate Consultant, I'll stick to some changes that are coming up that are applicable to real estate...

Now that the health care law has been declared constitutional, the remaining provisions will be going into effect. One little known provision is a new 3.8% investment income surtax, also called the health care surtax or the Medicare tax; it will go into effect on January 1, 2013.

This new surtax will be assessed on the lesser of a) net investment income or b) the excess of modified adjusted gross income (MAGI) over the “threshold amount.” For married taxpayers filing jointly, the threshold amount is $250,000; married filing separately, $125,000; all other individual taxpayers, $200,000. For trusts and estates, it is the beginning of the top income tax bracket ($11,650 in 2012).   What this means is: 1) If your modified adjusted gross income (MAGI) is less than or equal to the threshold amount that applies to you, you will not pay this tax. 2) If your modified adjusted gross income (MAGI) is greater than the threshold amount that applies to you, you will pay the 3.8% tax on the lesser of a) your net investment income or b) the amount of your MAGI over the threshold amount.

Note that the surtax liability is determined on income before any tax deductions are considered. That means your deductions could put you in the lowest income tax bracket, yet you could still have investment income that is subject to the surtax.  Also, the capital gains rate is scheduled to increase for high-income taxpayers to 20% in 2013, so the total tax on capital gains (with the surtax) could be 23.8% in 2013 and beyond.

The good news is that there may be some steps you can take this year to help you avoid or reduce the amount of surtax beginning in 2013.   Also, 2012 is an exceptional year for estate planning in general. The federal estate tax exemption is $5.12 million, which allows a married couple to transfer as much as $10.24 million from their estate with no estate tax. Under current law, this exemption is scheduled to shrink to $1 million in 2013. Other tax cuts, including income and capital gains taxes, are set to expire at the end of 2012.  With the new 3.8% surtax becoming effective in January, 2013 is on track to have the highest tax rates we have seen in many years.

Another change in the tax laws regarding real estate that we have coming up is the expiration of the Mortgage Debt Forgiveness Relief Act, which gives tax relief to homeowners that sell their primary residence through short sale.  The difference between selling your primary residence in 2012 via a short sale versus 2013 could be a considerable amount of tax.  Note that the transaction has to actually close escrow by December 31, 2012 to qualify, and that a short sale can take many months to close.  Please contact me if you have questions about short sales, or if you would like for us to mail or email you a free brochure about the process.  Even if you don't need or want to do a short sale, there may be some very legitimate reasons for not postponing the sale of a property, so it's worth investigating your options.  The consulation is free, and I will always give you an honest, direct answer.

Now, more than ever, you need the assistance of qualified professionals to advise you and help you implement the best plan for you and your family.  This is something that many people put off, and don't think about seriously until it's too late.  There are many aspects to estate planning other than the real estate aspect, so this advice is not just for investment property owners - everyone can benefit from proper estate planning, regardless of age or financial status.    Today is the first day of the rest of your life, what better time could there be to put your best foot forward?