The Not So Good:
Going, Going, Gone
The Housing Stimulus Bill H.R. 3221 (pdf) isn’t all good news, buried deep on page 690 of the 694-page law is an important change to the Capital Gains Exclusion rule that could cost home sellers across the country.
- The $250,000/$500,000 exclusion of gain on the sale of a principal residence is modified beginning in 2009, the exclusion, as it applies to a second home (or rental property) that is converted to a principal residence will be allocated. When the second home is sold, any gain attributable to use as a second home (or rental property) will be taxed at capital gains rates. Any gain attributable to use as a principal residence will remain excludable, up to the $250,000 and $500,000 limits. View some examples that illustrate the application of this new rule.
- $7500 home buyer tax credit that would be would be available for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
- Conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
- Provides $4 billion in neighborhood revitalization funds for local communities to purchase foreclosed homes.
- Expansion of the FHA to develop a refinance program for home buyers with problematic sub-prime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
This is a very readable summary: Housing and Economic Recovery Act of 2008 (pdf)
Usual disclaimer: I am not an accountant if you need advice speak to a tax professional.
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