Tax Tip of the Week
900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
You don't need to replace your home
For the week of
April 2, 2001
When you sell your home, you don't have to buy a more expensive house in order to postpone taxes on the sale. In fact, you don't have to invest in another house at all. If you meet certain qualifications, you can use your sale proceeds for whatever purpose you choose — without having to pay tax.
- The old rules
The Taxpayer Relief Act of 1997 eliminated two longtime provisions in the tax law. Under the old rules, taxpayers age 55 and older had a once-in-a-lifetime opportunity to exclude $125,000 of gain on the sale of their principal residence.
In addition, once every two years, you were allowed to roll over the gain from one house to the next as long as you purchased a replacement house of equal or greater value. Doing so allowed you to postpone paying tax on the gain.
- The rules today
You can no longer roll over gain from one home to another, even if you want to. And the gain exclusion for those age 55 and older no longer exists.
Now you can exclude up to $250,000 of gain if you own and occupy a home as your principal residence for at least two of the five years preceding its sale. A married couple is entitled to exclude $500,000 if both spouses used the home as their main residence during this period. There are no age requirements for this exclusion, and you can do it every two years if you otherwise qualify.
- Another tax-saving opportunity
The gain exclusion may apply to your vacation home, rental property, or business property if you used the property as your principal residence for at least two of the five years preceding its sale. You must pay tax on any depreciation taken after May 6, 1997. But the rest of the gain can be excluded, up to the allowable limits, if you meet the use and ownership tests.
Call us if you have questions regarding the home sale rules or to discuss tax-saving opportunities surrounding your home, your vacation home, or your business property.
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