The so-called Bush tax cuts are scheduled to expire at the end of this year. Unless Congress takes action and the president goes along, rates will go up for every taxpayer.
In 2001 and 2003, Congress passed tax cuts proposed by president George W. Bush. At the time, president Bush and the Republican leaders of Congress believed they were rewriting the tax code permanently. Instead, the laws they passed gave the cuts an expiration date at the end of 2010. In December 2010, president Barack Obama reached a deal with Republicans that extended the tax cuts at all income levels through the end of 2012 as part of a package that would also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.
Currently, an individual who makes a profit of $250,000 or more on the sale of his or her primary residence ($500,000 or more for a married couple) must pay a 15 percent tax on that profit (minus deductions including renovation costs and closing costs).
But if the Bush-era capital gains tax cuts expire, the tax rate on will jump to 20 percent. Plus, starting in 2013, individuals who make at least $200,000 in income (or married couples making at least $250,000) will have to pay an additional 3.8 percent in health-care tax on capital gains.
The expiration of the capital-gains tax cuts could potentially deal a blow to the housing market, as it did in 2010 when affluent homeowners were worried that Congress would raise the tax.
Republicans controlling the House passed a bill on Aug. 1 to extend tax cuts due to expire Dec. 31, officially laying down their marker in an election-year showdown with president Obama and his Democratic allies over whether to raise taxes on wealthier earners and people who inherit million dollar-plus estates. The vote was 256-171 along party lines.
The GOP plan renews a full package of Bush-era tax cuts when they expire at the end of the year, but Obama has promised to veto the measure. The president insists on letting the cuts expire on income after the first $200,000 earned by individuals and the first $250,000 made by couples. Congress is expected to address the impasse after the November elections.