Posted by Steve on July 01, 2003 at 13:21:05:
If you live in your primary residence for any two of the past five years, then all profits are tax free. It does not work for investment property unless it was your primary residence for any two of the last five years.
A great strategy is to buy a fixer and live in it two years while you do the repairs. Then sell it tax free and do it all over again.
New Tax laws for selling your home - Posted by Adrian
Posted by Adrian on July 01, 2003 at 12:59:29:
Is it true that if you sell your home under the new tax laws your profits are exempt from taxes up to a certain point?
Re: New Tax laws for selling your home - Posted by Eric
Posted by Eric on July 01, 2003 at 13:45:15:
Hi -
Steve is correct. There are also some exceptions to the time period – the Service is just now releasing some of these – and will probably (over time) release more.A couple of points – the time period (and the dollar amount of profit exempt from tax) is prorated if the exceptions (those I mentioned earlier) are met.
What this means is that you may not have to wait the entire two years before collecting your tax free profit. You can get the relevant information directly from the IRS website or from a national taxprep firm like H&R Block (they also have a website).
Most people aren’t going to be able to take advantage of the maximum amount of tax free profit ($250,000 for a single person or $500,000 for a couple filing jointly). But that doesn’t mean you shouldn’t take this provision of the tax code seriously – $25K, $50k, or more is definitely better than nothing – and it’s also far better than many people do in their retirement accounts. Remember that this little “gift” from Uncle can be repeated until the law changes and who knows when that will be.
My advice – take full advantage of it. It’s too good to pass up.
Good luck,
Eric C
PS - Why more small builders and rehabbers don’t take advantage of this provision is beyond me. Perhaps there is just too much resistance to the chore of moving every few years even when the govt is footing much of the bill, who knows?
One other thing – if you were really diligent (and maybe a bit lucky), you might consider living in a property that has the potential to be sold as a commercial property at some point in the future. If you were a builder, you might even make sure that the conversion process took place on schedule (24 months). All of a sudden, that $500,000K might look reachable after all.