Homeowners are winners under the Taxpayer Relief Act of
1997. Under the new law, up to $250,000 ($500,000 for a
married couple filing a joint return) of gain realized on
the sale or exchange of a principal residence is not taxable
– not just deferred. In addition, the new law reduced the
capital gains tax rate. Any gain from your home sale in
excess of $250,000/$500,000 is taxed at the new lower rate.
Homeowners qualify for this tax exclusion if two
requirements are met:
The home must be used as a principal residence for two of
the preceding five years. This law does not apply to
vacation or second-home properties. There are some
exceptions for those who cannot satisfy the two-year use
requirement.
No more than one sale or exchange can take place every two
years.
If you are selling your home, you should contact a tax
advisor for details on how this new law applies to your
sale.
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