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1034-Sale of Home Can Be Tax Free!Owning your own home has been a long-standing American tradition. Historically, families invested in a home and had a nice nest egg in their later years when they finally sold. This nest egg was eroded, however, by taxes on the gain unless the tax-savvy homeowner satisfied complicated tax rules. We often planned our home ownership around tax laws. Taxpayers have finally realized some tax relief! In a major 1997 tax law change, homeowners may now exclude up to $500,000 in gain from the sale of a principal residence ($250,000 for single taxpayers). This tax break is retroactive to May 7, 1997 and is reusable every two years, although complicated rules on five-year ownership, "unforeseen events" and marital status also apply. Taxpayers with sales or contracts signed after May 6, 1997, but before the date of enactment, have the option of using the old rollover deferral and age-55-or-over exemption instead. Most homeowners win because they now have the option of trading down, or selling and renting a new place to live, tax-free. And almost everyone is relieved of the burden of keeping paperwork on improvements that add to basis. However, those with more than $500,000 in gain may not find the new rules as favorable (primarily those who have lived in now high-priced homes for many years). As always, you should consult your attorney or professional tax preparer for additional information regarding your particular transaction. |
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