Fiscal Cliff Deal Will Help Housing, but Stay Tuned

by rheselbarth@solagroup.com

It took far too long, but members of Congress earlier this month finally created a way to avoid sending us all over the fiscal cliff. A Congressional failure almost certainly would have sent America into another recession, which more than likely would have put a stop to the housing market’s recovery. It’s not over, however, no matter how much you wish you never hear anyone say “fiscal cliff” again.

Many mini-cliffs lie ahead in 2013 so pay attention, because many issues will be discussed that could affect your personal and business-related finances. I don’t pretend to be an expert on politics nor the legislation that took us away from the edge – also called H.R. 8 or the American Taxpayer Relief Act of 2012 – but, I know this legislation benefits the housing industry and remodeling market.

H.R. 8 extends the 2011 version of the 25C energy efficiency tax credit, which includes a $500 lifetime benefits cap. When speaking about the fiscal cliff deal with Rob Dietz, economist with the National Association of Home Builders, he asked me to remind remodelers that as well as extending 25C’s sunset date to Dec. 31, 2013, the extension was done retroactively through Jan. 1, 2012, presenting a fantastic opportunity for a positive touch with past clients.

“This is an opportunity to contact the clients you worked with in 2012 to offer meaningful, helpful information that can save them money. If you installed windows or appliances or any other products covered under 25C, now is a great time to remind clients to check if they qualify for a tax credit,” Dietz says.

For businesses and owners, H.R. 8 includes several beneficial elements, which Dietz outlines as follows:

– 2001/2003 tax rates are extended for adjusted gross income levels under $450,000 ($400,000 single). This is good for small businesses and home builders, 80 percent of whom are pass-through entities that pay taxes on the individual side of the code.

– The Alternative Minimum Tax patch was permanently extended, which is good for small business owners who are frequently at risk of paying AMT.

– It permanently sets the parameters of the estate tax, which is positive for family-owned construction firms. It codifies the 2010 $5 million exemption amount (indexed to inflation) and a 40 percent estate tax rate.

– Section 45L energy-efficient new home tax credit is extended through the end of 2013. It allows a $2,000 tax credit for the construction of for-sale and for-lease energy-efficient homes in buildings with fewer than three floors above grade.

“We didn’t see a lot of housing tax incentives eliminated, which is good, but the fact that they reinstituted the Pease deduction limitations says policy makers will be looking at the mortgage interest deduction, which is one of the mini-cliffs Congress will address in 2013. Another mini-cliff will be the debt ceiling issue and sequester, which has been delayed until February, and Congress will be negotiating how to raise it, and speculation is it will be a combination of spending cuts and tax revenue, which for housing could mean taking away the tax credits. Overall, H.R. 8 is quite positive for builders and housing in general, but keep up your guard,” Dietz says.

Similarly, Tom Sullivan, lobbyist for the National Association of the Remodeling Industry, says H.R. 8 has a positive and negative side. “My opinion is, it’s a mixed blessing. On one hand, coming to a deal that averted a huge shock to the U.S. economy is great, because when shocked, people keep money in their pocket books, which affects remodelers. To extend 25C is also a positive. There’s no down side to it except that it costs money,” Sullivan says.

The negative element is that Congress punted again on some tough issues. [David Merrick, MCR, UDCP, chairman of NARI’s Government Affairs Committee and president of Merrick Design and Build in Kensington, Md.] said in a statement, ‘Small business owners know that you can’t spend more than you are taking in. This feeling extends to all NARI members, who are small business owners and expect the government to make the same type of fiscally responsible decisions as they make in their businesses.’ So, there’s a frustration by NARI members that many of these discussions will happen again in two months, when Congress should have resolved everything over [the last months of 2012]. There seems to be a lack of leadership,” Sullivan says.

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