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IMPORTANT TAX LAW CHANGES Effective on or
after May 7, 1997, the sale of your personal residence is no
longer taxed if the gain is under $500,000 for joint filers; $250,000 if you
file singly. Excess taxed at
capital gains rate. No age limits. No restrictions if you have already use a
one-time exemption. Home must be
used as principal residence for 2 of last 5 years. This does not apply to
vacation homes or second home properties. How often can
sellers make use of new rules? As often as once every two years. If a home has
been used as a principal residence and as a rental property during the ownership
any depreciation taken after May 7, 1997 must be recognized on sale.
This effectively ends over-55 requirement and rollover rules. Thus, for
example, someone can retire early and not wait for age-55 to sell a home. Or,
someone can move from a high-cost area to a low-cost area and not worry about
buying a home or equal or greater value to avoid taxation. In the case of
divorce, capital gains issues are likely to be moot for all but the most costly
households. Owners who have made major improvements in their homes should still
maintain full records to maximize possible write-offs.
Other
elements of H.R. 2014: Capital Gain
Rates -
Effective January 1, 2006 capital gains rate for assets held 5 years or more the
capital gains tax rate reduces to 18% if taxpayer satisfies complex rules (8% in
15% bracket).
Estate Tax
Relief -
The unified estate and gift tax credit of $600,000 was increased to $1,000,000.
See estate tax phase-in schedule below.
IMPACT.
This is much-needed reform, which may help preserve family farms and small
businesses. First time
buyers can now tap IRA accounts for down payments up to $10,000; effective
1/1/98. IRA withdrawals from relatives are eligible.
The new IRA rules may be the sleeping giant among the revised
regulations. Securities firms have traditionally established IRAs and other
retirement accounts. Not surprisingly, the money in such accounts has been
largely limited to certain forms of investments -- stocks, bonds, and mutual
funds -- that are typically sold by the firms, which create IRAs in the first
place. The result has been an enormous amount of money going into the stock
market, one reason for the rising stock exchange values, huge numbers of dollars
chasing relatively few investment opportunities. The new rules effectively open IRA accounts to the real estate community
-- more than 40 percent of all existing home purchases are made by first-time
buyers. Given penalty-free access to funds for the purchase of real estate, one
can expect a substantial increase in the number of down payment dollars
available to entry-level purchasers. This is good for first-time buyers, creates
demand for housing, and thus has a multiplier effect through the real estate
market and the economy in general. Linda Goold, an attorney and tax specialist with the Washington office
of the National Association of Realtors, points that the definition of a "first-time"
home buyer may be somewhat surprising. Rather than being someone who has never
held title to real property, or someone who has not owned property in the past
three years -- the standard for MCC financing and other state-level programs --
the new rule defines a "first-time" buyer as someone who has not owned
property for two years. Goold says that the IRA money need not come from the buyer's IRA
alone -- it can come from parents, a spouse, grandparents, or an
"ancestor." A donor cannot provide more than $10,000 in penalty-free IRA
money from a single account. A parent with two children, for example, can
withdraw as much as $10,000 penalty-free from a single IRA, say $5,000 for each
recipient child. The provisions regarding IRA issues continue to be clarified, so for the
latest information and advice both donors and receivers are best served by
speaking with a tax professional before counting on IRA money in a realty
transaction. Home office
deduction
liberalization became effective 1/1/1999.
Home office deductions are now open to a wider range of taxpayers.
However, a variety of old rules remain in place. As always with tax issues,
consult with tax professionals when considering transactions, financing, and refinancing. No change to
tax-free exchange. Starker type exchange rules intact.
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mail to randy@randydurham.com
with questions, comments or requests for info. Copyright © 1999-2008 Randy Durham ,LLC
Licensed in TN & GA (423) 664-1900
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