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is no longer in effect.
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.
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.
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.
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.
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
here to find homes for sale via a real estate professional in the Sarasota
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