Federal Capital Gains Tax and its effect on Real Estate
The Taxpayer Relief Act of 1997 offers a key capital gains change. How can you acquire a marketable asset which has a low down payment, have it appreciate over time, and by selling it, shelter up to a half-a-million dollars in tax-free capital gains to boot?
New legislation passed by Congress and signed into law provides this tax-free rollover and a new strategy for the overall housing market.
Effective for home sales after May 6, 1997, The Taxpayer Relief Act of 1997 allows
- non-married homeowners to exempt profits up to $250,000 from the sale of their homes;
- couples, up to $500,000.
What used to be a once-in a-lifetime, tax-free $125,000 exclusion from capital gains has been eliminated. This capital gains change will alter the incentive structure for a large part of the economy. It allows homeowners who sell their principle residence up to $500,000 in tax-free capital gains every two years; reinvesting the proceeds into a new residence to claim the exclusion is no longer required. The only requirement is that the seller use the home as his principle residence for a period of 2 years out of the last five years prior to the sale. That means most homeowners will not have to pay tax on profit from the sale of their home or have to undergo complicated documentation of expenses to satisfy the IRS. |
