Wednesday, February 1, 2012

The "You Don't Have to Live in Your Personal Residence 2 Years to Get the Tax Break" Loophole.

By Troy Corman,

One of the best things that happened in the Bill Clinton presidency was allowing home owners to sell their personal residences' tax-free if they had lived in their home 2 of the last 5 years. This is definitely another potentially great wealth builder that home ownership provides versus renting. Now, I've just learned from mortgage broker, Les Tuttle (@leslietuttle), with Cendera Funding, that there's a major loophole, that in certain cases, allows you to get a partial tax break even if you don't meet the 2-year test.

If you sell before the 2-year limit, and have an "unforseen circumstance", you can still take some profits tax-free. These are defined as natural disasters, a change in employment, becoming self-employed, divorce, legal separation, and even multiple births from the same pregnancy. Just starting a home-based business may satisfy the test, but consult with tax or legal experts for further clarification.

Currently, an individual home owner who fully satisfies the 2-years-out-of-last-5 years residency requirement, can book up to $250,000 in profits tax-free. For couples, it's a cool half-mil ($500K)! So an individual who satisfied the "unforseen circumstance" and lived in the house for only 1 year could claim half the tax-free amount, or $125,000. For a couple that met the "unforseen circumstance" requirement and only lived in the home 1 year, the tax-free capital gain max would be $250,000.

For the well-heeled that recently bought Dallas area homes at big discounts in tony neighborhoods like Highland Park, University Park or Southlake, this is definitely food for thought!

If you'd like to get your home sold while we have ultra-low interest rates, contact me for help.

Troy Corman is the founder of t2 Real Estate LLC, a Dallas real estate firm providing specialized knowledge with a hands-on approach. Specialties include residential real estate brokerage, land and acreage, and commercial real estate services. Contact us today at 214.827.1200 if you need to sell, buy or get your DFW property leased.

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