The new Housing Relief bill, the one that has a $7500 tax credit on a house purchase, but reaquires paying back, also has some other tax provisions.
One is that is reduces some of the capital gains that can be excluded on the sale of a principle residence.
If during the time of the ownership the property was not always the principle residence then the $250,000/$500,000 exclusion is prorated.
That might happen if you have rented it out and sold before the 5 yar period is up or had it as a 2nd home and them moved into it at a later time.
This just counter for the usage starting in 2009.
But it might affect someone’s planning.
http://phoenix.dbusinessnews.com/shownews.php?newsid=163706&type_news=past
“Exclusion of gain on sale of a principal residence
The exclusion from income of the gain from the sale or exchange of a principal residence will be limited under the legislation to the period that a home is actually used as a principal residence. Under current law, all gain on a home up to $250,000 for an individual or $500,000 for a married couple is generally excluded if the home is used as principal residence for two of the five years preceding the sale. Under the bill, the amount of gain excluded from income will be prorated to eliminate the portion of time after 2008 it is not used as principal residence, defined as nonqualified use. For example, if a taxpayer used a property as a vacation home from 2004 through 2011 and a principal residence from 2012 through 2013, the taxpayer would be required to include 3/10’s of the gain in taxable income, representing the portion of time the property was not a principal residence after 2008.
However, when a taxpayer otherwise qualifies for an exclusion of gain by using the property as a principal residence for two of the five years preceding the sale, all time in that five-year period after the date the home is last used as a principal residence will not be considered nonqualified use under the new rules. Thus, if a taxpayer uses a property as principal residence from 2009 through 2010, and then as vacation home from 2011 to 2013, the gain during all five years of ownership can still be excluded from income.”
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Replies
They're going to get it all aren't they?
Bob's next test date: 12/10/07
Quote of the day: "...can't be done, it will take too long, not enough pipeline capacity, yada yada but yet they don't apply the same skepticism to their own "solutions" such as wind and biofuels"
I love bills like that. You would have to be a lawyer and or a cpa to figure if it really will work for you.
Thanks for the head's up Bill.
It reads to me s if the writers of that piece are trying to close a loophole that some have been taking advantage of.
Seems pretty straightforward to me. A "Principal residence " is a "Principal" residence, not a rental or vacation home.
I don't see it as a "loophole". To me a loophole is something that is was unintended.This feature was clear in the code.BTW, did you look at the article. Other tax changes htat had nothing to do with housing in this "housing relief" bill..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Maybe this will help, but I still don't understand how.
No I didn't read the link. I will go back and do that .
Just addressed the posted stuff.
I may well be wrong but I always thought that the capital gains exclusion was intended to apply only to "Principal Residences" ie: Those one lives in full time. Rental use or vacation use doesn't seem to fit that criteria.
They can't get your Goat if you don't tell them where it is hidden.
It does on apply to principle residents. Always has.But nothing is static. Needs and usages changes over the years.Under rules say an 40 YO buys a home and a vacation home.Live in the home for 20 yo. Then at 60 empty nesters and retired sell there priciple home and get 250/500 exclusiong. Then move in the retirement home and that becomes their priciple residence until they sell and move in assisted living at 80. Under the new rules they could only take 1/2 of the exclusion on that sale..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Is the rational perhaps that since they already took a capitals gains write off on the one home as the principal residence they aren't entitled to "double dip" so to speak for the same time frames? Let me create create an example of what I can possibly see happening.
Individual buys a principal residence along the way and over twenty years they buy 10 rentals.
Time comes they sell the primary residence, take the gains exclusion, and then move into one of the rentals, stay there 3 years, sell that, take the capital gains and move into yet another rental , another 3 years and they repeat for the other 7 rentals remaining.
Does the current law allow that scenario to occur? ( my time duration for living in each rental may be wrong as I really don't know what the current law is . I have owned my place for 20 years and don't pay any attention to the gains issue)
They can't get your Goat if you don't tell them where it is hidden.
Under current and proposed changes this can happen. And I think that there are some on the forum (although I can't name any names) that used this.Buy a lot and build a house. Move in to it 2 years. While waiting fo rthe 2 years start building the next home. Then when the next one is finsihed sell the first. Repeat ever couple of years.What would have been earned income, if the labor was done for someone else, becomes capital gains. And they get an exclusion of 250/500k on each sale..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Under the new rules that would be harder to accomplish and get all the same gains that are possible under the current law correct? And yes I would guess some here do it.
I also know of a builder here who made a career out of it until the IRS busted him a few years back. His problem was he was writing off all the home expenses to his construction company and then taking the gains. That didn't fly .
They can't get your Goat if you don't tell them where it is hidden.
It all depends on the details of how the actual rules are implimented. Often the law does not go into enough details and rules have to be writen to define the issue (and then possibly challenged in court)..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill, I obviously will need to go back to the beginners course on this issue. I know so little that all I can do is try to learn and ask questions.
They can't get your Goat if you don't tell them where it is hidden.
re: Rentals
Even if you moved into your rental wouldn't you still have to recapture depreciation? When sold.
AFAIK you that has not changed. Where it was a principle residence before or after usage as a rental and was or was not when it was sold you need to recapture depreciation allowed since ?? (whenever that was added. don't remembver if late 1990's or early 2000's)..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill you are right but you should never write off depreciation unless you have bills you can lay on the pile at the sale to increase your basis.
The way that the code reads you have to pay the recapture tax on depreciated ALLOWED whether taken or not.I don't remember the details, but one of the tax guides (Lasser or similar) sights a case where a person did not take depreciation on purpose to raise their income to qualify for something else.Then was forced to pay the recapture tax although they did take the benifit of the depreciation at the time."but you should never write off depreciation unless you have bills you can lay on the pile at the sale to increase your basis."I am not sure what you are trying to say. Depreciation is taken over the years. Hard to tell what sale price and expense would be years later..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Just read the link. Confusing. As for the other non housing related stuff, isn't that simply the use of the "coat tails" so common in law making? Tag on something someone wants passed to a bill that is certain to pass? I don't approve of the concept personally , but am aware it is the way things are done.
They can't get your Goat if you don't tell them where it is hidden.
BillHartmann
Good eye! Thanks for the heads up as well! Won't affect me but it will affect some I talk with regularly..
Thanks much for the heads up.
Now I gotta go see what this does to military moves.