The new tax bill will affect vacation home owners, but only some of them
The new tax bill is designed to help first time home buyers buy a home and should help to improve the real estate market by giving them tax credits when they buy their first home. For more details on the bill go to http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2008/07/housing-bill-al.html She has a very complete description of its provisions.
However, there is always payback. When Uncle Sam offers one group of people a tax break, someone has to pay for it, and in this case, the second home owner will be part of it. There used to be a big loophole in the tax law that allowed people doing a 1031 tax deferred exchange out of an investment property to buy a property that they might like to live in permanently, rent it for a while, and then turn it into their permanent primary residence when they retired. That loophole was tightened up recently when new legislation was passed mandating that you had to have owned the home for at least five years and live in it for two of the five years before selling. Now according to Kay Bell, who writes the blog mentioned above,
…..under the new law, sellers will not be able to exclude gain for those times that the property was not used as the owner’s main residence, for example, when it was used as a rental or vacation property. This provision will affect homes sold on Jan. 1, 2009, and thereafter.
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July 28th, 2008 at 3:00 pm
Hi Joanne,
Great post. You are so right. This is great information to have. There has been so much talk about the ability to utilize this strategy that we need to get the word out that the ability to combined the 121 exclusion with rental property has been limted.
July 28th, 2008 at 8:28 pm
It is nice to have a 1031 exchange expert like you approve William! Thanks for visiting.