Housing Bill Changes Tax Law on Profits from Sale of Second Home -BYLN-

Daily Herald (Arlington Heights, IL), August 8, 2008 | Go to article overview

Housing Bill Changes Tax Law on Profits from Sale of Second Home -BYLN-


WASHINGTON u Deep in the nearly 700 pages of the new housing bill just signed into law is a complicated tax code change that could affect substantial numbers of people who purchase second homes or rental investment real estate in the coming decade with an eye to occupying them as their main residence later.

The bill narrows the use of the codeEs tax-free exclusion that allows sellers of principal residences to escape taxation on the first $500,000 of their profits (married joint-filers) or $250,000 (single-filers). Under current law, sellers can claim the full exclusion if they have used a property as their principal residence for at least two of the five years preceding a sale.

They can also claim the exclusion even if they convert an investment property or vacation house into their principal residence and live there for at least two years. This flexibility has been a boon to many tax-wise owners of multiple houses u particularly during the bubble years when values doubled in some parts of the country.

Property owners in markets with high appreciation rates could sell their principal residences for hefty profits u pocketing the first $250,000 or $500,000 tax-free u and then move into their rental condo or vacation property for a couple of years and repeat the process.

In effect, it was a form of financial alchemy where taxable profits could be magically transmuted into tax-free gains u at least up to the $250,000 and $500,000 limits.

That practice eventually caught the eye of tax reformers on Capitol Hill. Last year the House approved a bill that would ratchet down the rules on such transactions by distinguishing between "nonqualified" periods of rental or investment use and "qualified" periods of principal residence use. It resurfaced this year in the housing bill as a "revenue offset" u a way to raise an extra $1.4 billion over the next decade.

HereEs how the new rule is expected to work: If you buy a second home or investment property on or after Jan. 1, convert it later into your principal residence and then sell, youEll need to allocate any gain from the sale between periods of qualified and nonqualified usage. Rental or second home usage before 2009 is grandfathered u it wonEt count as nonqualified use in the equation.

The minimum period for qualified principal residence use will remain as under current law u two years out of the five preceding the sale. Any nonqualified use will have to be toted up to limit the amount of the tax-free exclusion you are allowed.

Sellers in future years will need to create a fraction against which to multiply their total gain.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Housing Bill Changes Tax Law on Profits from Sale of Second Home -BYLN-
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.