Selling Your Residence
 

Are you considering selling your principal residence? The Taxpayer Relief Act of 1997 changed the rules for recognizing a gain on principal residence sales. The new rule states that a taxpayer may exclude up to $250,000 of gain from income, and a married taxpayer filing jointly may exclude up to $500,000 of gain if a residence has been your primary residence for two out of the last five years. Gains in excess of the exclusion are subject to capital gains rates if the property was held for more than one year. The federal capital gain tax rate is 20% for property acquired prior to January 1, 2001, and is 18% for property acquired after December 31, 2000 that is held for five years or more. Gains from principal residence sales cannot be deferred (rolled) into a new property.

Gain amount is determined as follows: selling price less selling cost less the original purchase price less any capital improvements. Accordingly, individuals should maintain adequate records so they can easily determine their gain.

Individuals near the gain exclusion limit might want to consider selling their residence and acquiring a new property to avoid unnecessary capital gains and shelter an additional $500,000 of gain from tax on a new residence. Because the exclusion is permanent, individuals and married couples are no longer required to buy a bigger or more expensive house after selling their principal residence to shelter the gain.

If you have questions on this or other issues, please contact Bill Martin at (847) 850-5270, ext. 222.
 

847.850.5270          847.850.5271 - fax
1532 Barclay Boulevard, Buffalo Grove, IL 60089