***Update: On the evening of January 1st, 2013 – The US House of Representatives voted to accept the Senate version, sending the bill to the President for his signature.***
In the early morning hours of January 1st, 2013, the United States Senate passed the “American Taxpayer Relief Act of 2012” and the fiscal cliff ball was kicked down field yet again. The bill, passed on a bipartisan 89-9 vote, extended current tax rates for most American families. The bill is currently being debated by the House of Representatives and, if passed, could be signed by the President in time to avoid the sharp tax hikes and budget cuts that were automatically set to occur. Under the bill, most of those feared budget cuts will be extended for two months, giving the government time to come up with a more permanent solution.
The biggest news for investors was the agreement to keep the long term capital gains tax at 15% for individuals earning less than $450,000 jointly. Capital gains tax is the tax charged to taxpayers when they buy or sell an investment property, so this news is welcome relief to many investors looking to sell in the coming months.
Additionally, the passed bill did not include, as some feared, a provision to end the current tax law which allows for the tax-free the sale of a primary residence for American homeowners who profit $250,000 or less ($500,000 for married couples) from the sale of their home.
Finally, the bill extended the government’s waiving of the tax that would normally be paid by homeowners who have part of their loan “forgiven” in a foreclosure or short sale. Before this policy was enacted, homeowners who’s debts were forgiven in a short sale or foreclosure were confronted with a tax on the forgiven amount (as if it were income) putting individuals in a financially destitute position in an even worse place.
What do you think of this passage by the US Senate? Will the House ratify the bill and send it to the President? Will it even matter? Share your thoughts below.
Photo: Nico Andreas