There is a time bomb no one is talking about in regards to tax reform.
The homestead tax exemption currently states if you live in a house for 2 out of 5 years you don’t pay capital gains tax.
The bill in congress right now has this being changed to 5 out of 8 years.
“Some people could feel blindsided by the looming changes.
Both the House and Senate, for example, want to require people to own their homes longer before they can sell them without having to pay capital gains on any increase in value. Currently, they must be in their homes for two of the past five years in order to qualify, but lawmakers want to up that to five of the past eight years.
“It can mean the difference between thousands and thousands of dollars in tax, or not,” said Evan Liddiard, director of tax policy at the National Association of Realtors. “People are going to have to be ready to shift to a new world.”
You can read the full Politico story here GOP tax plan could bring big New Year’s surprises
Obviously this bill is not approved yet and can change, but this could have a huge impact on someone who has lived in their home 2-5 years and is selling.
The way its worded now, if they are under contract in 2017 they can close in 2018 and still get to use the 2 year tax code.
Here’s an excerpt from a story on CNBC
“If you were thinking about selling your house in the next couple of years but have only lived there for a short time, you could owe taxes on any gain from the sale.
The tax code currently allows hardship exemptions to that two-year rule, and it’s unclear at this point whether a similar exemption would be available under the revised five-year requirement, said Tim Gagnon, an associate teaching professor of accounting at Northeastern University’s D’Amore-McKim School of Business.
“It’s hard to know if the IRS will modify the current [rules] or throw it out entirely,” Gagnon said.”
You can see the full article here
So given the possibility of the tax reform bill in 2018, now is a good time to get your home listed and under contract. Contact Altru Realty to get your home listed for only 1.5% at close.
This can change and I’m not an accountant but something to pay attention to.
****Here’s the latest development on the tax reform since we published this post What’s in the Tax Bill, and How It Will Affect You
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