Yes. The times they are a-changin.’ Sometimes for the better and sometimes for the worse.
Here’s an example of a change in the tax law that could cost you big money if you’re not paying attention…
The days when you could convert your rental property or vacation home to a principal residence, and then use the full $250,000/$500,000 home-sale exclusion to avoid taxes, are gone.
Relatively new rules apply that you must follow carefully. We’ll explain how to do so and stay on the right side of the law when you read my new article titled Tax Tips: Does Non-Home Use of Your Home Damage Your $250,000 Exclusion?
Three ways our fact-filled article can help you:
- We’ll tell you what the law used to be. Before 2009 you could buy a rental house or a vacation home, then move in and make the property your principal residence. After two years you could sell it and qualify the capital gain for the full $250,000/$500,000 exclusion. And you could do it over and over again. We’ll tell you the whole story when you read the full article.
- We’ll explain how the new law works today. For starters, you have to divide your period of home-ownership into two categories: qualified and nonqualified use. The gain allocated to nonqualified use doesn’t qualify for the big home-sale exclusion. What constitutes qualified and nonqualified use? You’ll find out when you read the full article.
- We’ll tell you how to comply with the important three-year rule. Make sure to limit your rental (after the principal-residence qualification period) to three years. If you fail to do so, you won’t qualify for the $250,000/$500,000 exclusion. Ouch! All will be explained when you read the full article.