In a time when mortgages are upside down and families are being forced into short sale and foreclosure, our government now wants a bite out of anyone who is lucky enough to have some equity left in their home.
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home was exempt from taxation if you met the following criteria:
· You lived in the home as your principal residence for two out of the last five years.
· You had not sold or exchanged another home during the two years preceding the sale.
· You met what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.
But the real estate capital gains exemption is about to expire. On Jan. 1, 2011 the top income tax rate on ordinary income and dividends will go back to 39.6%, the top tax rate on capital gains will revert to 20%, and the top tax rate on estates will go back to 55%. Some in Congress want to extend the tax cuts for everyone, some want to extend them but not for the “rich,” and others want to hold the dividend tax rate to 20%. But time is running out and so is the exemption.
If you have equity, and have been thinking of selling, I would really consider doing it before December 31, 2010. I hear a large sucking sound from that hole called Capital Hill.
For a free copy of my handout How to Calculate Gain, email me at firstname.lastname@example.org
See you at the Lake!
Sources: Forbes.com, REALTOR.org