Tax Article - Home Sales: Housing Assistance Tax Act of 2008

Under prior law, it was possible to avoid a taxable gain of up to $500,000 on the sale of a vacation home by moving into it and using it as a principal residence for at least 2 years of a 5 year period ending on the date of sale. However, as a result of a change in the law under the recently enacted Housing Assistance Tax Act of 2008, this planning idea may not work as well as it once did. Specifically, a portion of the gain that would otherwise have been excluded in now included in taxable income to the extent the property was not used as a principal residence after 2008. There are some planning considerations in reducing the gain that would otherwise be included under the new law. Specifically, where the property is used for the first 2 years of the 5-year period ending on the date the property is sold, the period of non qualified use (e.g., vacation home) during this 5-year period is excluded from the percentage of non qualified use in calculating the gain to be included.

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