Let me first say that I am not an accountant and
for questions about your taxes, please consult your accountant. My understanding
of the new Laws:
The Taxpayers Relief Act was signed into law in August 1997 and this
has made some important changes to the way real estate sales are taxed.
One of the most significant changes involve residential real estate sales.
In The Past, as long as a homeowner bought a replacement property
more expensive than the one being sold, the gain on this type of sale
was deferred. Also, buying a less expensive home could trigger tax consequences.
However, if a taxpayer was over 55 years of age, a once in a lifetime
exclusion of $125,000 was available as long as certain rules were met.
The New Rules apply to the sale of any principal residence made
on or after May 7, 1997. Couples filing a joint tax return can exclude
up to $500,000 of gain on the sale of a principal residence. Single return
filers can exclude up to $250,000 of gain.
- To qualify for the exclusion the taxpayer must have occupied the home
being sold for 2 of the last 5 years.
- A home may have been treated as a rental property so long as it has
been a principal residence for 2 of the last 5 years.
There is a formula for partial exclusion for taxpayers who cannot meet
the two year requirement. Check with your accountant.
- These generous new exclusions do not apply to 2nd homes or vacation
homes.
- The new exclusions replace the old one time exclusions. It now allows
homeowners who meet the requirements to make a tax free profit on the
sale of a home without having to reinvest in another.
Capital Gains rates: Maximum= 20% for sales after May 7, 1997
For more information recommend contacting http://www.wwlaw.com/taxact.htm
and check out The New Tax Law.
Very interesting stuff!
