As always, we do not advise on taxes.  But for your personal information I wanted to address a change that will occur with the new Housing and Economic Recovery Act of 2008.

 Housing Tax Exemption.  As you all know under the current law, until the President signs the Housing and Economic Recovery Act of 2008, homeowners can exclude from taxation profits on the sale of their home to the tune of up to $250,000 if they’re single taxpayers, $500,000 if married filing joint returns.

The tax payer, as you also know, must own and live in the property as his/her main residence for two of the five years before they sell it.

Many persons have turned rentals into primary residences by simply moving in and living there for a couple of years (two out of last five), then upon selling they avoided capital gains.

That rule has changed.  When a person sells such a property on or after January 1, 2009, they will have to factor out those periods they did not live there and pay taxes on that portion of the profit.

Here’s an example:

George and Barbara next January buy a vacation home for $300,000. Five Years later, they sell their old principal residence and make the vacation home their new principal residence. Five years after that, George and Barbara, sell the vacation-turned-primary-residence for $800,000. That nets them a gain of $500,000.  Under pre- Housing and Economic Recovery Act of 2008, George and Barbara wouldn’t face any tax on the entire $500,000 gain.

The new law, however, means that George and Barbara can exclude only 5/10, or 50 percent, of the gain. That would give them $250,000 of nontaxable property sale profit and $250,000 upon which they would owe long-term gain taxes.

 This blog is for your use and not so you can give tax advice.  Always have your buyers seek tax advice if they have questions on subjects of tax deductions.  Here’s one I recommend, Diane W. Clough, CPA, Ltd. 6130 W. Elton Ave., Las Vegas, Nevada 89107 (702) 870 0888.