Posted Tue Aug 12 16:27:00 UTC 2008

One of our fantastic agents, Mary Ann Genellie, recently shared some insight on changes in the new tax code…

Take note of the Upcoming TAX Code Change – 2nd Homes or Rental Investment Property

Did anyone notice the tax code change that could affect second-home or rental investment buyers? A potentially significant tax code change, for numerous individuals who have a goal to occupy a 2nd home or investment property as a main resident at a later date, was buried in the just signed housing bill. The change restricts the code’s tax-free exclusion.

Currently, the law permits sellers of primary residences to escape taxes on the first $500K of profits (joint-married filers) or $250K (single filers). By law, sellers may claim the full exclusion if they have used a home as their principal residence for a minimum of 2 of the 5 years, prior to selling. In addition, they may also claim the exclusion if they convert a 2nd home or investment property to their main residence and reside there for at least 2 years. It has been a fabulous tool for tax-savvy owners with multiple homes – taxable profits are turned into tax-free gains up to the limit of the law.

Going forward…Should you purchase an investment property or 2nd home on or after January 1, 2009 then convert it to your main residence and then sell it, any gain from the sale will need to be allocated between “qualified” and “non-qualified” usage periods. Rental or 2nd home usage will not count as non-qualified use. Also, two years out of the five preceding the property sale will continue to be the minimum period to qualify for principal residence use.

It will be worth having a conversation with your tax advisor if you are planning to sell,buy or reside in a 2nd home or rental investment after January 1, 2009.

Posted By: John D’Ambrogio

Filed Under: John D'Ambrogio | Tags: second-home and investment properties tax code | Share With a Friend