What the 2013 fiscal cliff deal means to the remodeling industry

  • Tax rates permanently rose to Clinton-era levels for families with income above $450,000 and individuals above $400,000. All income below the threshold is taxed at Bush-era rates.
  • The tax on capital gains and dividends is permanently set at 20 percent for those with income above the $450,000/ $400,000 threshold.  It remains at 15 percent for everyone else. (Clinton-era rates were 20 percent for capital gains and taxed dividends as ordinary income, with a top rate of 39.6 percent.)
  • The estate tax is set at 40 percent for those at the $450,000/$400,000 threshold, with a $5 million exemption. That threshold is indexed to inflation.
  • The sequester is delayed for two months. Half of the delay is offset by discretionary cuts, split between defense and non-defense. The other half is offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they’re moved over.
  • The pay freeze on members of Congress, which Obama had lifted this week, was re-imposed.
  • The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit are extended for five years.
  • The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.
  • The deal did not address the debt-ceiling, and the payroll tax holiday expired.
  • Two limits on tax exemptions and deductions for higher-income Americans are reimposed: Personal Exemption Phaseout (PEP) is set at $250,000, and the itemized deduction limitation (Pease) kicks in at $300,000.
  • A package of temporary business tax breaks (“tax extenders”) is extended for another year. This includes the 25C energy-efficiency tax credit (see sidebar item for more information).
  • Scheduled cuts to doctors under Medicare are avoided for a year through spending cuts that haven’t been specified.
  • Federal unemployment insurance is extended for another year, benefiting those unemployed for longer than 26 weeks. This $30 billion provision won’t be offset.
  • A nine-month farm bill fix (extension of the 2008 farm bill) was included in the deal, expiring after September.

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