Monday, October 29, 2007

Avoiding Capital Gain Tax on your Rental

While Congress is working to address the foreclosure problem, they are tampering with the capital gain situation on houses as well. The same bill that addresses the foreclosure cancellation of debt tax issue also closes a tax loophole that many find popular. Here's the scheme....

A person purchases a house as a rental. After renting it out for a few years, they move into the house and make it their principle residence for two years. Then when they sell the house they can exclude from taxes $250,000 (or $500,000 if married and filing joint) of the gain.

Under the proposed law, the taxpayer must prorate the gain according to the time it was their principle residence versus other uses -- namely, a rental. Then only the portion that corresponds to period of time it was their principle residence can be excluded as above.

There are a number of finer points to this, and the proposed law disregards time periods before January 1, 2008. For more information, see your Enrolled Agent or CPA specializing in taxes.

Wednesday, October 24, 2007

Mortgage foreclosures are rampant currently. Congress is addressing the issue, and the Mortgage Foreclosure Debt Relief Act of 2007 has passed the House and is in the Senate Finance committee.

This bill, should it become law, will provide tax relief for those experiencing foreclosure on their initial purchase mortgage, but not much help for those who have used the equity in their house for other purposes (e.g., buying a car). Also, it appears that to qualify for this relief you must have both owned and lived in the house for at least 2 out of the last 5 years.

Tuesday, October 23, 2007

Income Taxes

Questions on Income Taxes? This is the place! You can also visit www.TheMastersTaxService.com for more information.