Tuesday, April 19, 2005

Capital Gains

Profits made on the sale of property are subject to capital gains taxes. The current federal limit on how much profit you can make on the sale of your principal residence before being required to pay capital gains tax is $500,000 for a married couple and $250,000 for a single homeowner. This tax break applies if the owner has occupied the property as his/her primary residence for at least 2 of the past 5 years. If the property in question is used as an investment, capital gains taxes may be deferred using a 1031 tax exchange.

Currently, there are some exceptions to the 2 year rule if you are moving due to job relocation, a change in health, or some other unforeseen circumstance. There are some limits, so it is advised that you speak with your tax advisor. In addition, the IRS and Treasury department have put the finishing touches on new, less strict regulations about who can avoid capital gains taxes when they sell a home. These new regulations could help property owners who are forced to move before living in there home for 2 years because of "unforeseen circumstances", such as divorce or the need to care for a sick parent. For more information, please consult your tax advisor. You can also get tax information at http://www.smartmoney.com/taxmatters/index.cfm?story=20030108&hpadref=1



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