Property owners need to be aware of the tax law change that will go into effect January 1, 2009. This new law changes the how one is taxed when they turn a rental property into a primary residence.
Currently, if the property is sold at least 2 years after the date of the original purchase, and it is owner occupied at the time of the sale, you may apply the full $250,000 exclusion against the gains.
Under the new tax law this would not be the case. You are still eligible for an exemption if you sell a property at least 2 years after the date of original purchase, and it is owner occupied. However, you may be subject to capital gains based on the percentage of time the property was used as a rental. You will also have to pay tax on depreciation recapture.
One of the great things about building a real estate portfolio is that when life changes occur it gives you more options. Making the decision to live in a former rental property is an excellent solution to many situations. However, you do need to be aware of the tax implications when making such financial decisions. This is especially significant when it is a divorce situation. When determining the value of the properties at the time of the division of real estate, these tax consequences need to be accounted for to ensure a true accounting of the value of the assets to be divided. There is more to the value of a home than an amount determined by an appraisal.
Donna Thomas is an expert in navigating clients through complex real estate transactions. For more information please contact her at donna@donnabthomas.com.
Currently, if the property is sold at least 2 years after the date of the original purchase, and it is owner occupied at the time of the sale, you may apply the full $250,000 exclusion against the gains.
Under the new tax law this would not be the case. You are still eligible for an exemption if you sell a property at least 2 years after the date of original purchase, and it is owner occupied. However, you may be subject to capital gains based on the percentage of time the property was used as a rental. You will also have to pay tax on depreciation recapture.
One of the great things about building a real estate portfolio is that when life changes occur it gives you more options. Making the decision to live in a former rental property is an excellent solution to many situations. However, you do need to be aware of the tax implications when making such financial decisions. This is especially significant when it is a divorce situation. When determining the value of the properties at the time of the division of real estate, these tax consequences need to be accounted for to ensure a true accounting of the value of the assets to be divided. There is more to the value of a home than an amount determined by an appraisal.
Donna Thomas is an expert in navigating clients through complex real estate transactions. For more information please contact her at donna@donnabthomas.com.
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