If you are a real estate investor, or perhaps a vacation home owner, today’s Wall Street Journal article covering changes in tax law for second homes will be of interest to you. A recent bill passed through Congress that will change slightly how tax breaks are calculated on a second home.
Some Republicans complained that the move would hurt the second-home market. Rep. Kevin Brady (R., Texas) said the change would punish those who had saved to purchase a second home. Rep. Sam Johnson (R., Texas) called it a “luxury tax on retirement homes.”
Under current law, a person can exclude from taxes up to $250,000 in capital gains on the sale of a principal residence. Up to $500,000 of gains can be excluded for married couples. A second home can become a principal residence as long as the taxpayer has lived there for two of the previous five years.The bill approved yesterday would change those rules. Under it, the size of the tax break for a second home would be tied to the portion of time, out of all the years a house is owned, that it serves as a principal residence. Living in a property longer would result in a larger tax break on any gains when it is sold.
These changes can, in part, be credited to the government’s attempt to provide tax relief to homeowners facing foreclosure. Not entirely fair you say, perhaps true.
