An Expert View into Real Estate Law for 2013

As I mentioned in my latest newsletter, we have met with community and business leaders to get their point of view about the current economic and political conditions, and its impact to our local market. With this in mind, we reached out to Jay Knighton II, Managing Partner at Knighton & Stone, PLLC, to get his read on the current conditions related to Real Estate Law.  This is particularly helpful as we as homeowners (or prospective homeowners and investors) look for ways on how to protect our investments. As I thank Jay and his team of attorneys for their valuable contribution in keeping us abreast of what’s happening, I hope you find this insight of value.


Real Estate Law 2013

Jay Knighton, Nicholas Dupre – Knighton & Stone, PLLC


It’s anybody’s guess as to what will happen with taxes and spending in 2013.  A couple of items to watch out for though are: (1) the new 3.8 percent tax on the net investment income of high-income persons from the new Health Care bill; (2) the expiration of mortgage debt relief; and (3) the lowering of the estate tax exemption.

3.8% Tax

The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. Even those who have such high incomes, the tax still will not apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.  The bill itself also says the tax falls only on that portion of any gain that is “taken into account in computing taxable income” under the existing tax code. The first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already. (That exclusion doesn’t apply to vacation homes or rental properties.)


Mortgage Debt:

As it stands now, any mortgage debt forgiven by a lender in a short sale, loan modification or foreclosure is exempt from federal taxation. That exemption expires in 2013, which means borrowers must count mortgage relief from lenders as income on their federal tax returns. For example, a borrower would have to pay taxes on a $100,000 reduction in principal owed on a loan, or a $20,000 write-off in the amount owed after a short sale. An extension of the tax exemption — established under the Mortgage Forgiveness Debt Relief Act of 2007 — is probable; however Congress must deal with serious fiscal issues this year and next year so there is no guarantee the exemption will emerge from those negotiations intact.  This means lawyers, brokers, agents, and clients must work extra hard to make sure short sales and really all sales are easy for lenders to sign off on. That means submitting packages only when they include a signed contract and a good-faith deposit from the buyer.


Estate Tax Exemption:

Currently the estate tax exemption sits at $5.0M, which means you can give away during life and at death $5.0M without paying any gift or estate taxes.  Every dollar over that is taxed at a 35% rate.  Those numbers will change to $1.0M at a 55% come January 1st.  We anticipate that changing and are hearing numbers like $3.0-$3.5M at a 45% rate, but when or even if that change comes is anyone’s guess.  This makes planning one’s estate that much more important, especially those with rental properties, second homes, and out of state real property.


Jay Knighton can be contacted at 281.681.3004. You can visit Knighton and Stone’s website, at

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