Scott Gottlieb, CPA
Assistant editor: Susan A. Maffetone, CPA
the Tax Relief Act of 1997
now you have probably read about the major changes in the
tax law (see important new tax Information). At this time
we would like to focus on implementing the new laws into action.
Since 1997 is not yet over, we will start with strategies
that can still be implemented in the coming months.
of Your Home
Old Tax Rules:
the sale of your home creates taxable gain to the extent
the sales price exceeds your tax basis in the home (tax
basis is purchase price plus capital improvements
you made to it.)
You purchased your home five years ago for $150,000, you
changed all windows in home for $25,000, and your tax
basis would be $175,000. You sell your home for $200,000.
Your taxable gain would be $25,000.
old law however had two different tax breaks for homeowners:
on the gain was postponed indefinitely if within two years
before or after the sale you spent the proceeds on a new
principal residence that cost the same or more then the
you were age 55 or older you had a one-time exclusion
of $ 125,000 if you had used the home as your principal
residence for at least three of the five years before
New Tax Rules:
new tax law replaces these two tax breaks with the following
applicable to sales made after May 6, 1997:
exemption of $250,000 ($500,000 for married couples) of
the gain on the sale of your home.
to the new exemption: (all must apply to you)
must have owned the home for five years before the sale.
must have used it as your principal residence at various
times totaling at least two years out of the five.
exclusion can be used as often as you qualify for it,
not to exceed once every two years.
to the qualifications:
may still be able to qualify even if one of the above qualifications
is not met.
to the two-year residency rule: A partial exemption is
allowable. You can still exclude part of the gain based on
the number of months you resided in the residence.
of new rules for 1997
you want the new law to apply to a sale after May 6, 1997
but before the effective date of the new law (July 28, 1997)
an election must be made on your 1997 tax return.
you do not want the new law to apply, and you had a contract
to sell prior to or on the effective date of the new law,
then you must also elect on your return.
you must elect, if your gain would not have been recognized
under the two-year rollover exclusion.
you have sold your home this year and would like to discuss
the tax implications please contact our office.
for the free 1997 tax organizer in coming months.
An easy way to help you organize that shoebox of tax related