What if I am over 55 years of age and I already used my one-time exclusion of $125,000?
Can I take advantage of the new law?
Yes. Although the $125,000 exclusion for individuals over the age of 55 has been repealed, the new law allows any
couple, regardless of age, to exclude form taxes up to $500,000 in capital gains or $250,000 for singles every two years
for an unlimited number of transaction involving their principal residence.
I sold my home before the President signed the bill. Do I still qualify for capital gains tax exclusion?
Maybe. Sellers and buyers who have signed a "binding contract" between May 7, 1997 and the day President Clinton
signed the bill (August 5) are authorized to use either the existing rollover law or take advantage of the new tax provisions.
The tax laws would bind individuals who signed a contract prior to May 6, 1997 in effect at that time. For home sales after
the August 5 date, the new tax laws are applicable, although some individuals, who are in the midst of a two-year
rollover period, following an earlier sale, may be able to take advantage of the new exclusion.
Are losses on the sale of a residence deductible?
No. Taxpayers still cannot deduct on the sale of their residence.
What are the new capital gain rates?
Capital gain rates are based on the previous rate of 28% to 20% for those in upper income brackets and from 15% to
10% for those in lower tax brackets for assets sold after May 6, 1997. Overall capital gains rates will be lowered even
further in 2001, to 18% to 8% respectively, for assets purchased after December 31, 2000 and held five years or more.
No indexing of capital gains was included.
Has the holding period for assets to qualify for capital gains tax treatment changed?
Yes. Effectively July 29, 1997 assets must be held at least 18 months to qualify for capital gains treatments.
Previously, assets held 12 months were eligible for capital gains treatment.
Is investment property taxed differently than other assets under the new bill?
The new budget plan specifies that at the time of sale of an investment property, any gains due to appreciation will
be taxed at a reduced 20% rate and gains due to "depreciation recapture" will be taxed at 25%.
Have the rule governing 1031 "like kind" exchanges changed?
No. Despite reports that these rules might have been significantly changed, no provisions were included in the bill.
Can I withdraw money from my Individual Retirement Accounts (IRAs) for the purchase of a home?
The tax bill allows penalty-free withdrawals by grandparents, parents, children, spouses or principals of up to $10,000 form
existing and newly created "American Dream" IRAs for the down payment and closing costs of purchasing a first-time home,
after December 31, 1997.
ALL OF THESE MATTERS ARE SUBJECT TO REGULATORY INTERPRETATION. PLEASE CONSULT YOUR TAX ADVISOR.
