Tax Loophole closed…watch out!
In a previous post, I talked about how Uncle Sam allowed a couple to keep up to $500,000 in profits tax free when they sold their property. This was assuming they had lived in that property for 2 of the last 5 years.
So a couple of savvy investors could:
1) Buy a property in a fast appreciating area.
2) Rent said property for 3 years.
3) Move into said property for 2 years.
4) Sell said property and pocket up to $500,000 tax free!
Then, they could reinvest half of the tax free money, and
repeat steps 1 to 4. As they say, knowledge is power. I’m sure more than a few people got rich off of this maneuver.
Well, as they also say, all good things must come to an end.
(who is ‘they’ anyway? 
Apparently, this tax loophole has been closed. As part of the Housing Crisis Relief Bill, Congress modified the tax code for this scenario. Now, in the above example, the couple would be taxed
on the three years that they didn’t live there. In the above scenario, they didn’t live there 60% of the time. So, they would be taxed on 60% of the profit (or $300K). That would be a HUGE Tax bill. Could you imagine having to write a check for that bill on April 15th? This is really where the mortgage relief money will come from. By changing this tax code, Uncle Sam will generate billions in additional tax revenue.
If you were lucky enough to have bought your investment property before 2008, then this tax change shouldn’t affect you.
Also, it won’t hurt anyone that uses their property solely as their principal residence. I’m sure some investors will be caught off guard in a few years and will be hit with a monstrous tax bill.
Hopefully, one of those investors will read my blog before they
buy their next building.
Until the next time,
Mark Killion
Real Estate Broker
Century 21 Affiliated
5200 S. Harper Ave
Chicago, IL 60615
24 Hour Voice Mail: 312-242-1822
Send me a note!
Visit me online: www.773property.com
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