TAX FACTS

TAX FACTS

Since the Taxpayer Relief Act of 1997, if you've owned your home and have lived in it for two of the previous five years before selling it, then you can make a profit of up to $250,000 if you're single or $500,000 if you're married, with no federal tax bill. You may, however, owe state taxes. This new provision replaces the prior rollover provision on home sales and the $125,000 exclusion of gain for those 55 and over. This new $500,000 ($250,000 for singles) exclusion will not benefit those whose profit exceeds the 20% capital sins tax rate limit. Compare these two cases:

• John and Sue are in the 31% tax bracket. They sold their primary residence for a profit of $200,000. Since the profit was less than $500,000, they pay no tax on the home sale.
• Greg and Lisa are in the 31% tax bracket, too. They sold their primary residence for a profit of $550,000. They owe $10,000 in capital gains tax ($550,000-$500,000 exclusion x 20%).

If you fail to meet the two-year requirement because of an unexpected move related to job or health, you are still entitled to a pro- rated amount of the exclusion based on how much time of the two-year requirement you were able to meet. Also, if your move is job- related and the moving expenses are not reimbursed by the employer, you may qualify for a deduction of those costs.

For further tax information, consult a tax accountant specializing in real estate matters in advance.