Capital Gains

Tax Changes and Effects
The new capital gains law allows homeowners to avoid paying taxes on the first $500,000 of profit if they are married or on the first $250,000 if they are single. You must have lived in the home as your primary residence for two of the last five years. You are allowed to use the provision as often as you like, as long as it fits in that two year period. Any gains above the limit will be taxed at the new 20% capital gains rate - down from the current 28 %.

The old law provided a $125,000 "one time" tax free exclusion on profits for home sellers 55 or older. This no longer is used, but those who have used it will be allowed to use the new provisions without penalty. Under the old law you could roll over gains if you bought a more expensive house. If you sold a more expensive one and purchased a less expensive one you were liable for gains tax. Under the new law this provision is no longer in effect.

Time Frames
If you bought and sold a home within 1 year, any capital gains would be taxed as regular income. If bought and sold between 1 and 2 years, gains would be taxed at the long term capital gains rate. Filing an extension may be a consideration, talk with a CPA for advice. Needing to sell and move for specific reasons may have cause for exclusion of gains tax prior to two year ownership.

Save Receipts
Always save receipts for home improvements in a "house file". If you don't qualify for the 2 year ownership rule, the cost of improvements can be used to offset capital gains tax you may have after the sale of your property.

People Benefited Now
- Wanting to downsize, children have all moved out.
- Retirement and move out of the area to less expensive area.
- Job relocation from area with high property values to lower values.

One Thought
People with rental property could sell their current home, move into their rental for two years and sell it under the $500,000/$250,000 provision with the same benefits.

Change in Property Values?
It is unknown how many people have been waiting to sell their property until this bill was passed. One possible scenario: Many homes are suddenly put on the market.

The Immediate Impact
Should not immediately affect property values as there currently appears to be more buyers than sellers. Immediate effect would be properties with more "days on the market". This would hurt sellers needing to move soon or those sellers who listed the house over market value.

The Next Impact
When more and more houses are put on the market with fewer buyers this market peak will end. Property values could go back down again like 7 years ago, to start a new cycle. Timing for those sellers sitting on the fence could mean more money made. Contact your accountant or tax attorney for advice.

Penalty-free IRA
The final package allows penalty-free early withdrawals of up to $10,000 from an IRA to help with the down payment on a first-time home purchase. The IRA can be the home purchaser's own account or can be a parent's or grandparent's.

Need Answers
If you are not sure what tax consequence you face when selling real estate, consult with a CPA or tax attorney and not a real estate agent.

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