It took far too long, but members of Congress earlier this month finally created a deal that kept us from falling over the fiscal cliff. Failure to do so almost certainly would have sent America into another recession, which more than likely would have put a stop to housing’s recovery. We’re not out of the woods, however, even if you wish no one says “fiscal cliff” again.
Many mini-cliffs lie ahead in 2013, two of the more notable of which are the mortgage interest deduction and the debt ceiling, which will be making headlines very soon. Pay attention because many issues will be discussed that could affect your personal and business-related finances.
Still, much good was accomplished in H.R. 8, also known as the American Taxpayer Relief Act of 2012. I don’t pretend to be an expert on politics nor H.R. 8, but I know some of its elements are good for housing and remodeling, including extending the 2011 version of the 25C energy efficiency tax credit.
When I spoke about the fiscal cliff deal with Rob Dietz, an economist with the National Association of Home Builders, he asked me to remind remodelers that the 25C extension was also done retroactively to Jan. 1, 2012, presenting a great opportunity for positive contact 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.
In addition to the 25C extension, H.R. 8 includes more benefits for business owners, some of which Dietz highlights as follows:
- 2001/2003 tax rates are extended for adjusted gross income levels less than $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.
“Overall, H.R. 8 is quite positive for builders and housing in general, but keep up your guard during 2013,” Dietz says.
Similarly, Tom Sullivan, lobbyist for the National Association of the Remodeling Industry, says H.R. 8 has both positive and negative elements. “It’s a mixed blessing. On one hand, creating a deal that averted a huge shock to the U.S. economy is great, because when shocked, people keep money in their pocketbooks rather than spending it with remodelers,” Sullivan says.
“The negative element of H.R. 8 is that Congress punted again on some tough issues such as the mortgage interest deduction and the debt ceiling. 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],” Sullivan says.
While Congress debated H.R. 8, more than 1,000 remodelers were responding to our annual market forecast survey. Remodelers’ outlook for growth in 2013 looks good, thanks partly to H.R. 8. See the results of our survey and the complete market forecast report, which begins on page 24.