HR 3648: Changing the Capital Gains Tax Exemption Available Under Section 121
Currently, sellers can exclude gains from their taxable income up to $250,000 per person ($500,000 for a married couple) if they have lived in the house as their primary residence for a total of 24 months out of the last 60 months (2 out of the last 5 years) pursuant to Section 121 of the Internal Revenue Code.
It appears however that Congress will soon pass a law making some of those gains taxable. This will apply to sales of homes after December 31, 2007.
The mortgage relief bill that Congress is working on now will also include a provision that will tighten up the rules under which a taxpayer can apply the Section 121 tax-free exclusion to the sale of a primary residence that was once a second home.
Essentially, the way it is written today (which can always change until it is passed), the tax law would be changed so that a portion of the gain from the sale of a primary residence that was once a second home would be taxed based on the percentage or amount of time that the second home was used as a second home before it was converted into a primary residence.
We will keep you updated on the status of the bill.
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