Taxes and your home – Important reminders for 2009

Tax season will be here before we know it. Rather than wait until I hear from my CPA, Joe Lutz, I decided to call him.  Besides discussing my personal situation, Joe shared some great information that every homeowner and future homeowner will find helpful.  Here’s what he had to say.

The exclusion of gain on the sale of a primary residence is currently $500,000 for a married couple and $250,000 for a single person. The home must owned by taxpayer and be the primary residence of the taxpayers for 24 months (2 years) out of the last 60 months (5 years).  Losses on the sale of a principal residence are not deductible.

For properties sold in 2009 or later years, if you convert a second home or rental property into a primary residence, some of the gain will not be eligible for the home sale exclusion. For homes sold after 2008, the portion of profit that is taxed, will be based on the ratio of time the house was used as a second residence or rental property, to the total time the seller owned the house.

For Example: John owns a house for 10 years, and sells the house in 2009 with a gain of $100,000.  The house was a rented for 2 years and was John’s principal residence for 8 years.  The taxpayer will be be taxed on $20,000 (2 years rented divided by 10 years the property was owned multiplied by the $100,000 gain).  He will be allowed to exclude $80,000 of the total 100,000 gain (8 years as a principal residence divided by 10 years owned).

**The above information is not tax advice and may not apply to your situation.  If you would like a referral to a competent CPA, please contact us, and we would be happy to provide a couple of names and numbers!