A few weeks ago we shared the outlook on what to expect from the results of the Fiscal Cliff. Now that the new year has arrived and Congress made a deal, we wanted to address a few important parts of the deal that we believe individuals should be aware of:
Dividends and Capital Gains Tax: Taxes on dividends and capital gains stay the same except for:
- Filers with modified AGI of ($200K single/$250K married) who will now be subject to an extra 3.8% Medicare tax on dividends/capital gains (effectively an 18.8% rate)
- Filers with modified AGI of ($400K single/$450K married) who will now have dividends/capital gains taxed at 20% and be subject to an additional 3.8% Medicare tax on dividends/capital gains (effectively a 23.8% rate)
Morgage Interest Deductions: This was a topic for debate but the outcome was very positive for the housing market. Homeowners get to keep their mortgage interest deductions, plus there is still tax relief for Mortgage Debt Forgiveness. (There were 98,000 short sales in Q3 2012, as an example of how prevalent this is, debt forgiveness will continue to allow the housing market to clear and recover).
Payroll Taxes: The payroll tax holiday has expired. This means there will be a 2% hike on the first $113,700 in income or about a maximum of $200 a month. So tax rates are going up for nearly everyone, but 90% of the new tax revenue will be collected families who earn $1.0 million or more. (according to the Kogod Tax Center at American University)
Would you like to read more? Take a look at our December newsletter to see more facts about the results of the fiscal cliff.