Capital Gains Tax - Part 2

There were major capital gains tax law changes in 1997.

There were major tax law changes in 1997. The old tax provision for the sale of your primary residence was that you could roll over any capital gains into a new house as long as you did so within two years of the sale and the new home was more expensive than the old home. Also available back in the olden days was a one-time capital gains exclusion of $125,000 on the sale of the primary residence of people over age 55. Both are gone now!

The new provision is better. Married couples filing a joint tax return can exclude you to $500,000 of gain from the sale of their primary residence. Individual taxpayers may exclude up to $250,000. To qualify for the the exclusion, the taxpayer must have owned the property and used it as his or her primary residence for at least two of the last five years (this ownership period does not have to be consecutive).

For a husband and wife filing a joint return, the exclusion is available if either spouse meets the ownership requirement and both spouses meet the use requirement. This exclusion is available to all taxpayers once very two years. The IRS also allows a partial exclusion based on the number of days the home was used as the primary residence. If you have lived in a house for only one year and are a single taxpayer, you would qualify for a $125,000 exclusion.

This exclusion is particularly welcome for older taxpayers who want to downsize. They may have lived in their homes for over 30 years and would realize large capital gains when they sell.