The best tax break available to the public is for homeowners when they sell their home.
I was speaking recently with a savvy business person and buyer who was surprised when I told him he had an automatic $250,000 capital gain exemption on the sale of his apartment and if married eligible for a $500,000 capital gain exclusion on the sale of their primary residence.
I'm surprised every homeowner and buyer doesn't know this. Many home owners still believe they have to purchase another home to receive a tax benefit.
All that changed in 1997. One of my first blog posts back in 2006 was titled 1997 tax-reform-great-for-real-estate-
The Taxpayer Relief Act of 1997 - signed into law by President Bill Clinton together with the Balanced Budget Act of 1997 is probably the most significant change in recent times affecting real estate. This law made some major improvements for Home Sellers, Property Owners and First Time Home Buyers. It simplified taxes for 99% of Homes sold in the U.S.
Since 1997 Home sellers are eligible to exclude up to $250,000 if single or up to $500,000 if married, of the capital gain on the sale of the residence. In order to be able to claim the entire exclusion, the home seller must have owned and resided in his or her home for at least two years of the last five years prior to the sale of the residence. If eligible for the inclusion, it may be claimed once every two years.
If the home was sold because of a change in employment, health, or other unforeseen circumstance, the home seller may be eligible to claim a partial exclusion of capital gains even if he or she didn't live in the home for a total of two years of the last five before the sale. The portion of the partial exclusion is calculated based on how long the seller lived in and owned the home. The exclusion relates to the gain only, not the gross sale price. Broker's commission is deducted from the gross sale price as is capital improvements and closing costs.
Prior to the Taxpayer Relief Act of 1997 the tax law allowed rollover that required reinvestment in a home of greater or equal value. The previous law also allowed a one-time capital gain exclusion of $125,000 for taxpayers over age 55 who sold their homes. This tax reform enabled many to keep much of their wealth that they accumulated from the sale of their homes.
The 1997 tax reform law also allows early withdrawals from Ira's without penalties of up to $10,000 for First Time Home buyers. The law defines first time home buyers as any one who has not owned a home for the past two years. The cap gain tax was also lowered from maximum 28% to maximum 20%.
The Taxpayer Relief Act of 1997 has helped many sellers. Many who did not have to wait until age 55 to get an exclusion. This same 1997 Tax Reform law also helped to revitalize distressed urban areas by creating empowerment zones. The creation of urban empowerment zones to promote business development.