Monday, September 24, 2012

Act Now Before the Tax Laws Change

Every time that Congress examines the tax code, Realtors get nervous, and we are probably not the only ones.  Any change causes uncertainty, and any increase causes disruption for those who have planned transactions based on current laws.  We have already been warned that certain taxes are going up next year, including the long-term capital gains tax.  All we need to know really is how big the Federal debt has become, and we can logically conclude that something needs to be done in the not-too-distant future about raising Federal revenue.  The short answer:  Taxes will likely go up in some form, regardless of the outcome of the election.  It's best to maximize income now, especially in the case of capital gains.

One tax change that has not been as widely broadcasted is the expiration on January 1st of the Recovery Act provision allowing people doing short sales to avoid being taxed on forgiveness of debt.  The IRS Code considers income from any source, including the cancellation of money owed to someone, to be taxable, and it will go back to collecting those taxes in 2013.  The short answer:  If you are in the middle of a short sale, or you think you are eligible for one and you can do it very quickly, try hard to get it done before the end of this calendar year.  If you are buying a property, try to take advantage of this by doing everything you can to get your sale closed in 2012, and perhaps you can negotiate for part of this benefit to come to you in some way, by lowering the price, or increasing what you may receive in closing costs.