New Tax Rule Change for Investors

by on May 13, 2009

You may not be aware of the fact that the Housing and Economic Recovery Act of 2008 changed the rules on the capital gains deduction for investors.

In the past, if you purchased a home in 2002 for $500,000 and rented it out for 3 years, then lived in it for 2 and let’s say it appreciated $250,000 in that 5 year period, then you got to write off the full $250K gain as tax-free income.

NO more! The taxable amount is now determined by the number of days the home is not occupied as the principal residence divided by the total number of days it was owned.

Let’s say you lived in it for 2 of the five years then 60% of the gain would not qualify for the exclusion. As a result, if the gain was $250K, then only $100K or 40% would be allowed.

This is just a general overview of the law. As with most laws, there are always exceptions, therefore it is highly recommended that you check with a tax professional regarding the specifics in your area.

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