Tax Benefits for Home Sellers A subject that is frequently discussed in real estate, but often misunderstood, is the Taxpayer Relief act of 1997. Most home sellers can benefit from it. This act refers to the exclusion of capital gains on the sale of a principal residence... or the tax benefit associated with selling a home.

The Relief Act changes the treatment of gain on the sale of a residence and replaced previous provision that had benefits to only a few but frustrated many. Code Sec. 121 was created stating: an individual may exclude from income up to $250,000 of gain realized on the sale or exchange of a residence. The exclusion increases to $500,000 for joint filers.

For instance, if you and your spouse purchased a home for $100,000 and sold it ten years later for $600,000, you would be exempt from capital gains because the gain does not exceed the $500,000 limit. It is not necessary to rollover the gain into another, more expensive home. Primarily, the Act of 1997 allows homeowners to choose the type of housing they want without worrying about the tax consequences. It is also designed for home sellers can take advantage of the tax benefit once every two years, unlike the onetime exclusion of the previous Act.

However there are strict guidelines that must be followed. To qualify for exclusion you must have owned and occupied the residence for a minimum for two of the last five years from the date of sale. For obvious reasons, property intended solely for renting are exempt from this tax benefit; however, often rentals and vacation homes can quality if they have served as a primary residence during the five year allotment.

But remember... any gains incurred above the $250,000 and $500,000 limits will be taxed at the 20% capital gain rate... and beginning 2001, home owners who occupied their homes for more than five years may qualify for a lower capital gains rate of 18%.

Due to the Tax Relief Act of 1997, home owners have more flexibility without having to make home buying and selling decisions based primarily on tax considerations. Likewise, home sellers may impower themselves with additional cash to plan for the future.

For further information consult a tax advisor, lawyer or your local REALTOR.

Feel free to contact me for more local information. you can E-mail me at: pbell@texas.net