CAPITAL GAINS TAX RULES AND THE HOUSING ASSISTANCE TAX ACT
Under general tax rules, homeowners can exclude up to $250,000
($500,000 for married couples filing jointly) of capital gains from the sale
of their primary residence, provided they meet certain criteria. These
criteria include:
Ownership and Use Test: The homeowner must have owned and used
the property as their principal residence for at least two of the five
years preceding the sale.
·Frequency Test: The exclusion can only be claimed once every two
years.
However, the Housing Assistance Tax Act of 2008 introduced a critical
change affecting properties converted from rental to primary residence
use. Specifically, the Act established rules for non-qualified use periods,
which impact the exclusion of capital gains for properties not used as the
taxpayer’s primary residence for the entire period of ownership.
Non-Qualified Use Periods and Their Impact
A non-qualified use period is when the property is not used as the
taxpayer’s primary residence. For properties converted from rental use to
primary residence, the period of rental use before conversion is considered
non-qualified use. This distinction is crucial because it affects the
calculation of the capital gains exclusion.
When a property has periods of non-qualified use, the portion of the gain
attributable to the non-qualified use is not eligible for the exclusion.
Instead, it is subject to capital gains tax. The formula for calculating the
non-excludable gain is as follows:
Divorce Situations and Rental Properties
Divorce often involves the division of marital assets, including real estate. Sometimes, one spouse may
move into a rental property previously part of the marital estate and convert it into their primary
residence. This scenario raises important tax considerations, especially when the property is later sold.
06 DIVORCE REAL ESTATE & MORTGAGE JOURNAL
What’s my property worth?
The two most common
methods for obtaining real
property value are obtaining
an appraisal or a CMA but
what’s the difference
between the two? The
primary difference is
perspective.
An appraisal is completed
by a licensed residential
appraiser who bases their
opinion of value on recent
comparable home sold sales
data.
A Comparative Market
Analysis (CMA) is
completed by a licensed real
estate professional who
bases their opinion of value
on what the property may
potentially sell for in the
current market.