So Congress sorta kinda reached a deal to avert the “fiscal cliff” — well, at least for a year. Pick your favorite reliable news source to read how it affects most things; we’re just going to look at real estate issues here.

There are some provisions of the bill that affect real estate specifically, and others that affect tax deductions in general (including the mortgage interest deduction). Here are the most notable.

Real-estate specific things:

1 Someone who has had part of his mortgage principal reduced — e.g., by a short sale or loan modification — will not have to pay taxes on that reduction… at least if it happens before January 1, 2014, when that provision will expire.

2. Homeowners who earn less than $110,000 annually can continue to deduct any mortgage insurance premiums through 2013; it was also made retroactive for 2012.

General things that may affect real estate for the very wealthy:

1. If you earn more than $250,000 ($300,000 for couples), you have a limit on the total value of your tax deductions — that includes the mortgage interest deduction.

  • The more you earn over $250,000, the less you can take in itemized deductions.
    • If you earned $251,000, for example, you would reduce your itemization by $30.
    • If you earned $300,000, you would reduce your itemization by $1,500.
    • If you earned $500,000, you would reduce your itemization by $7,500.

So it’s noticeable for the very wealthy, but not earth shaking.

(These limits aren’t actually new. They were originally put into place during the first Bush administration back in 1990, but were phased out starting in 2001.)

2. Capital gains that put you above $400,000 in income will now be taxed at 20% instead of just 15%, except for the sale of your principal residence. That’s still exempt — at least up to $250,000 in profit ($500,000 for couples).

3. You can leave your estate of up to $5 million ($10 million for families) to your kids, and they won’t pay any tax. Anything you leave above that $5/$10 million, though, will be taxed at 40%.

The good folks at NAR have a pretty good explanation of it all. Click here to check it out.