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Shrinking lakes Capital Gains Tax
2008 seems the new draft law on housing was not a savior of us all - like a scorpion is a little kick in the queue! However, struggling homeowners can breathe easy, the kick is not directed at them, in fact, is targeted to real estate investors.
Whoever seeks the housing market, the world will not give real estate a much needed boost as it is another obstacle to buying a home, this time directed investors.
Capital gains tax is always part of the profit and loss formula when investing in real estate, and the levels were generously high for both investors and residents living in your home. Residents still have the same concessions, but has now changed for investors.
To re-cap on capital gains that was - and still is for residents to own a house in which they live and have lived for two years: compensation for capital gains of $ 250,000 for a single person and $ 500,000 for a married couple.
Capital gains tax is only charged on the profit in the sale of the house, which is usually not necessarily on the actual selling price of the house.
However, there is a marked change in tax legislation for People buying a house and rent it for a while and then move to the house for two years before selling it.
It used to be possible to sell the house and convert all the benefits that were made when he was a rent-free income taxes under the umbrella of capital gains. The new law has changed all that.
Although investors may have lived in the rental house for two years before sale, the profits from allocation is no longer sacred. The new law says it must be apportionment calculated and divided between taxable years that it was a rental property and not taxable years if the owner lives in it.
This new rule comes into force on 1 January 2009 and this is a hypothetical example of how it could be. Buy a house in June 2009 for $ 400,000 and rent for three years, live in it for two years and sell it in June 2014 for $ 700,000. (Dream on!)
This means that you have a capital gain of $ 300,000 (assuming nothing can be used as tax deductions). Under the old system that could be exempted from capital gains tax by using the single person allowance of 250,000 exemption from capital gains dollars. This means that only would have paid capital gains in the last $ 50,000.
This no longer applies and now the tax department will tell you that yes, you can claim exemption from capital gains for the two years that were actually living in the residence, ie you can claim two fifths of the $ 300,000 in earnings against its own allocation of $ 250,000. This calculates to $ 120,000.
However, for another three years, when it was a rental property - the capital gains is applicable. Therefore, you will pay the rate of tax on capital gains on the remaining $ 180,000 (three fifths) of the proceeds of $ 300,000 you do when you sold the house.
About the Author
PorchLight Real Estate Group combines local market knowledge with cutting edge marketing skills. For more information on Denver CO real estate or to do a search for Highlands Ranch homes, visit us online at PorchLightGroup.com.
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