The new housing bill signed by President Bush last week may affect some affluent homeowners who own multiple homes.
Under the old and new law, homeowners who sell their primary residence can realize up to a $250,000 net gain if single or $500,000 if married without having to pay capital gains.
The old law allowed homeowners who own multiple properties to sell their exisiting home and then move into their second or third home they've owned for a while, convert it into their primary residence, and sell it once again and pay little or no capital gains.
Here's an example Smart Money Magazine published on their website:
Example: Say you bought a very nice vacation home on 1/1/05. On 1/1/11, you convert it into your principal residence, live in it for two years, and sell it on 1/1/13 for a sweet $500,000 profit. Your total ownership period is eight years, but the two years of post-2008 use as a vacation home (2009 and 2010) count against you. Specifically, the two years result in a nonexcludable gain of $125,000 (2/8 x $500,000 = $125,000). So you'll have to report the $125,000 as capital gain on your 2013 Schedule D and pay the resulting federal income tax hit. If you're a married joint filer eligible for the $500,000 exclusion, you won't have to pay any federal tax on the remaining $375,000 of gain ($500,000 - $125,000) because it's completely sheltered by your exclusion. If you did the same deal today, however, you wouldn't owe a dime to the IRS.
The new tax law takes effect next year. Some tax professionals seem to think that this new tax rule contains loopholes.
