Turning Your Honolulu Rental Into Your Primary Residence
September 4th, 2008 categories: Honolulu Real Estate 101, Reasons To Sell
Margaret Woda, of RE/MAX Vision in Crofton Maryland, has an excellent post explaining recent changes to rules regarding the sale of a primary residence, which was formerly used by the owner as an investment property. Rather than try to explain this complex change be sure to go to the post and read it very carefully. Also, do not rely on the post for tax advice! You should always see your own tax professional regarding the specifics of your situation.
“The new law closes that “loophole” by requiring homeowners to pay taxes on gains made from the sale of a second home to reflect the portion of time the home was not used as a principal residence (e. g. vacation or rental property). The amount taxed will be based on the portion of time that the house was used as a vacation (second) home or rented out. The rest of the gain remains eligible for the exclusion, as long as the two-out-of-five year usage and ownership tests are met.
For example, if married taxpayers owned a vacation home for 10 years but lived in it as a principal residence only for the final two years prior to the sale, the maximum allowable exclusion ($500,000 for a married taxpayers) would be reduced by four-fifths (80%). Accordingly, a $400,000 gain on the sale that would be eligible for the full exclusion under the pre-Act law would be reduced by 80% to $80,000, rendering $320,000 of the gain subject to taxation.”
CLICK HERE TO READ THE ENTIRE POST.
Today’s picture was taken on the trail behind my home. I don’t know what it is, but it sure was pretty!
OTHER POSTS WORTH READING!
Loans For College Condos
The Value Of A Realtor
Realtor Code of Ethics
Determining Offering Prices
Thank you for the mention! Great piece of advice, to check with one’s own tax advisor. New legislation always comes with lots of small print that could never be covered in a blog.