New Housing Bill's Hidden Tax Trap

By
Mortgage and Lending with Nasser Real Estate

President Bush signed the Housing and Economic Recovery Act of 2008 into law and the press jumped on the obvious storylines:

  • First-time home buyers get a $7,500 purchase "credit"
  • Conforming loan limits move to $625,000
  • Delinquent homeowners get a lifeline from the FHA
  • Local governments get federal money for buying and restoring foreclosed homes

However, tucked away on the last few pages of the text, in a section called "Revenue Offsets", there's an important tax implication.  The new housing law changes the way in which capital gains exclusions are calculated on the sale of a residence.

Under the old system, a taxpayer was entitled up to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided he lived in the residence for at least 2 of the preceding 5 calendar years.

Savvy homeowners exploited this verbiage, moving from home-to-home every 2 years to avoid paying capital gains. 

The new law thwarts this tactic. 

Capital gains exclusions are now calculated by taking the capital gains on the sale of the home and multiplying it by a ratio of how long a person has lived in a home, by how long that person owned the home.

In the example above, a person living in a home for 2 of 5 years would be entitled to 40 percent of tax-free gains on a home sale instead of all of it.  As always, however, it's best to talk with a qualified accountant about how tax code changes may impact you personally. 

The new capital gains rules go into effect starting January 1, 2009.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Location:
Pennsylvania Lackawanna County
Tags:
recovery act
housing bill
2008

Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the chair to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Rainer
14,950

John Topa

Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the car to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information