Loophole Closed on Capital Gains Exclusion

For investors who move into their investment property in order to claim the $250,000 home sales profit tax-free capital gains exclusion ($500,000 for couple), the new law passed in July has closed this lucrative tax loophole.

Instead of the old all-or-nothing proposition, under the new Capital Gains Exclusion rule, the exemption is a ratio.

If a home seller occupied a property as a primary residence in 2 of the last 5 years, he would be entitled to only 40% of his capital gain tax-free instead of the old 100%. The new rules will be effective starting January 1, 2009. Homeowners selling in 2008 are exempt.