Section 121 Exclusion may be FIVE years, not TWO!
If you have lived in your home at least 2 out of the past 5 years and are thinking of selling, do it now or you will lose the tax exemption. Currently, the IRC Section 121 allows you to exclude $250,000 ($500,000 if married) of capital gains on the sale of your primary residence, as long as you’ve lived in the property for the past two out of five years.
In the New 217-2018 Tax Law Bill, if you were planning to sell your primary residence and cash out the capital gains tax-free, you had better get moving on listing the property and hope that either (1) you sell before the end of the year or (2) this measure does not pass.
What the Legislation Would Do:
- Caps the mortgage interest deduction at $500K for new mortgages
- Cap applies to new mortgage debt (but not refinancing) incurred after November 2, 2017. Limit is not indexed to inflation causing its value to even further diminish over time. Increases the standard deduction
- Puts homeownership tax incentives beyond the reach of more than 90% of American families.
- Limits the exemption on Capital Gains Tax from the sale of a primary residence New rules would require homeowners to live in their home for 5 of 8 years before to qualify for the exemption creating a hardship to homeowners who have to move inside five-years.
- Eliminates the deduction for state and local income or sales taxes. Homeowners in all 50 states would be double-taxed on the money they pay for state/local taxes.
- Eliminates the deduction on interest on student loans.
- Eliminates the Mortgage Interest Deduction for second homes.
- Eliminates the deduction for moving expenses.
- Eliminates the deduction for medical expenses, even on elderly.
- Eliminates the deduction for personal losses from hurricanes.
If the current bill passes as written, it may be to late for you to sell. The new bill states that you must now live in your primary residence for the past five of eight years in order to qualify for the gain exclusion.
The catch here is that there is no transition period as currently written in the bill. This means that any sale after January 1, 2018, must meet the new five-of-eight-years requirement.
If you wait, it may be too late. The time to sell is NOW.