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ASSOCIATE BROKERS - PRUDENTIAL CRANE

How Will You be Affected by the Real Estate Aspects of the 1997 Tax Law Changes?

The new legislation completely replaces the "rollover' deferral of tax liability on home-sale profits. It also terminates the $125,000, onetime, tax-free "exclusion" on profits for home sellers 55 years or older.

The new legislation is a much simpler system. It will allow the majority of taxpayers who sell their principal residences (provided they used the property as their principal residence for two of the prior five years) on or after May 7, 1997, to escape federal capital gains taxes on their profits.

Married home sellers, filing jointly, will be able to take up to $500,000 in home-sale gains, tax free, provided they use the property as their principal residence in two of the prior five years. Taxpayers who file singly will be able to take up to $250,000 of gain without capital gains taxation.

What about people who closed on a home sale before May 7, 1997? They will be taxed according to the previous rules.
What about seniors who have already used their 'one-time $125,000 exclusion"? They too will be free to make full use of this new law, provided they meet the two-year principal residence test.

What about Capital losses on home sales? Unfortunately, the new law provides no relief for sellers who suffer a net loss on the sale of their principal residence.
There is now penalty-free use of up to $1 0,000 from IRAs for down payments. These funds can come from an IRA owned by the buyer, their children, parents or grandparents.