According to a report by NAHB’s Housing Economics Department, less than one percent of South Carolina’s tax payers took advantage of the home buyer tax credit that expired in April 2010. The tax credit resulted in stimulus to the housing market in South Carolina of $100 million to $200 million. The top states, clustered in the mountain region of the U.S., included Nevada and Arizona.
South Carolinians were more aggressive regarding the energy efficiency tax credit. Four to five percent of South Carolina tax payers took advantage of the home buyer tax credit.
Using these data, the tax credit may have raised new home sales by 10% to 20% above the alternative baseline, with the range depending on how many sales were simply accelerated. But as the geographic data above indicates, these gains were likely not evenly spread across the country given the size of the tax credit as a share of local housing prices, the state share of first-time buyers, and the overall level of new home sales and building in each state.
Provisions in the $858 billion federal tax bill signed into law by President Obama on Dec. 17 could be bad news for home owners interested in remodeling projects to conserve energy.
The law slashed the popular tax credits for energy-efficient remodeling from the current 30% of an improvement’s cost ($1,500 maximum per taxpayer) to a 10% credit, with a $500 maximum for expenditures on insulation materials, exterior windows and storm doors, skylights and metal and asphalt roofs that resist heat gain. The law also clamped new dollar-specific limits on key improvements that had been eligible for 30% credits. These include a $150 tax credit limit on the costs of energy-efficient natural gas, propane and oil furnaces and hot water boilers, plus a $300 credit limit on the costs of central air-conditioning systems, electric heat pump water heaters, biomass stoves for heating or water heating, electrical heat pumps, and natural gas and propane water heaters.
The new law also limits allowable tax credits for energy-efficient windows installed during 2011 to a total of $200, compared with the previous $1,500. On top of that, it prohibits taxpayers who have taken total tax credits in past years exceeding $500 from claiming any additional credits on energy-conservation projects they undertake in the coming year.
Donna Shirey, chairman of NAHB Remodelers Council and president of a contracting firm in the Seattle area, said the gutting of energy-efficiency credits “is a big step backward. It’s bad for the environment, bad for consumers and, of course, bad for jobs in our economy. We’re heading the wrong way here, sending absolutely the wrong message.”
Washington Post (12/30/10); Kenneth R. Harney
A rumor that is spreading rapidly on the Internet is that the Healthcare legislation that passed Congress earlier this year contains a provision to impose a 3.8 percent sales tax on homes sales. There is a hint of truth to the rumor, but for the most part it is untrue.
The tax being referred to is not a sales tax or a transfer tax, but a tax on certain capital gains, as described below. Some capital gains from the sale of a home could be caught up in the tax, but the rumor exagerates the impact. The vast majority of sales will not be impacted because of the capital gain exemption on a principal residence.
New Tax on Capital Income
Set to take effect in 2013, a tax increase on income from capital gains will affect some real estate investments. However, it will have a negligible impact on sellers of principal residences.
The new 3.8% Medicare tax on so-called unearned income will affect high-income taxpayers who report taxable income due to capital gains and other non-wage income. It will not affect income that is currently tax-exempt, including most capital gains like income resulting from the sale of a principal residence, the result of the $250,000/$500,000 gain exclusion rules. Taxpayers with less than $250,000 in income will not be impacted by the new tax.
Under prior law, Social Security and Medicare benefits are financed by payroll taxes on wages. The tax is equal to 12.4% of covered wages up to a maximum amount of $106,800 in 2010, with half paid by the employer and half paid by the employee; and 2.9% of covered wages uncapped, again with half paid by the employer and half paid by the employee. Self-employed individuals — including independent contractors — generally pay both the employee and employer parts of the tax. Unearned income (e.g. rents, dividends, interest and capital gains) were not subject to these taxes.
As a result of the Patient Protection and Affordable Care Act of 2010, this system is changing. Under revised law, the Medicare tax will increase for taxpayers earning more than $250,000 (if married) or $200,000 (if single). In particular, the individual’s Medicare portion of the tax — which was previously 1.45% or half of the 2.9% — increases to 3.8%, but only for certain income amounts. The rate of 3.8% applies to the smaller of: (1) the amount of income above $250,000/$200,000 of modified adjusted gross income; or (2) net investment income. The tax also applies to self-employed individuals.
Net investment income is the sum of income from interest, dividends, annuities, royalties, rents and capital gain — except income derived from active participation in a trade or business, including sole proprietorships, partnerships and S Corporations.
As noted earlier, tax-exempt unearned income (excluded gain from the sale of a principal residence or interest income allocatable to a tax-exempt bond) is not subject to this new tax.
Here are two examples:
- A couple with wage income of $260,000 and $9,000 in capital gains will pay the extra 3.8% tax on the smaller of $19,000 (the difference between $269,000 and $250,000) and $9,000. $9,000 is smaller, so the increased tax is equal to $342 ($9,000 times 3.8%)
- A couple with wage income of $50,000 and gains income of $210,000 will pay the extra 3.8% tax on the smaller of $10,000 (the difference between $260,000 and $250,000) and $210,000. $10,000 is smaller, so the increased tax is equal to $380 ($10,000 times 3.8%).
A new study by the National Association of Home Builders demonstrates that households across the economic spectrum benefit from housing tax incentives. This research counters the often-heard but erroneous claim that the mortgage interest deduction almost exclusively benefits high-income households.
The study, which was authored by NAHB tax economist Robert Dietz, Ph.D., supplements previous NAHB research regarding housing tax incentives, explores the problems with government methods of measuring the size of housing tax expenditures, and re-examines the income distribution of the mortgage interest and real estate tax deductions.
A multitude of descriptive statistics in the report demonstrate that the housing-related tax deductions, the mortgage interest and real estate tax deductions, strongly benefit not just average home buyers but also younger households who tend to be recent home buyers with larger mortgage debt. This is true in terms of aggregate amounts claimed on tax forms, average deduction amounts, and shares of taxpayer income.
The paper’s conclusions suggest that proposals to change these deductions need to take into account the generational consequences, particularly with respect to first-time home buyers, as well as the impacts on modest-income households.
You can access the study for free by clicking here.
These are the Top 10 Actions taken by NAHB to benefit members in May:
1. Credit Crisis: NAHB worked with members of Congress to draft the Residential Construction Lending Act. The bill is pending.
2. Cash for Caulkers: NAHB has taken steps to ensure that members will be tapped to participate in the work resulting from legislation that will offer tax-free rebates for residential energy-efficiency improvements. The bill is pending. www.nahb.org/energyefficiencyretrofits
3. Financial Regulatory Overhaul: NAHB was actively involved in passing the financial regulatory overhaul bill, Restoring American Financial Stability Act. The bill has passed Congress.
4. Green Multiple Listing Service Toolkit: NAHB developed a toolkit to help real estate appraisers provide more reliable valuations of homes with energy-efficient features. www.greenthemls.org
5. Study demonstrates benefits of housing tax incentives: NAHB’s Economics and Housing Policy Group recently completed a study that demonstrates that households across the economic spectrum benefit from housing tax incentives.
6. Technical Assistance Hotline: NAHB has implemented a hotline where HBA members can find out about building products, techniques, technologies, and best practices. www.nahbrc/techassist
7. Construction Forecast Conference: NAHB’s semi-annual Construction Forecast Conference is held in the Spring and the Fall, and is now available via webcast.
8. Homebuyer Tax Credit: The credit expired on April 30. NAHB has developed a useful brochure called “Opportunity Knocks” that outlines why now is a great time to buy a new home. www.nahb.org/homebuyerbrochure
9. OSHA Workplace Safety Agreement: NAHB and OSHA renewed a formal agreement to work together to provide home builders with information, guidance, and access to training to protect your workers on the job site. www.osha.gov/dcsp/alliances/hang.nahb.html
10. Webinar on Using Social Media: The NAHB Professional Women in Building Council hosted a webinar to teach builders how to use social media to build their brand and sell more homes.
HBA of Greenville members benefit from a three-in-one membership. As an HBA member, a portion of your dues are sent to NAHB and your receive membership benefits like those above from the National Association of Home Builders.