Discussion:What's it all about? (HR 3221 technical expl)

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Discussion Forum Index --> Tax Questions --> What's it all about? (HR 3221 technical expl)


Death&Taxes (talk|edits) said:

24 July 2008
It appears the Housing Act will pass and be signed. Anyone with any idea what this 'tightening' of Sec 121 rules means:

"For sales and exchanges after 2008, the Act provides that if a taxpayer moves his principal residence to a second home (e.g., vacation home), and later sells that second home, he will not be able to use the Code Sec. 121 homesale exclusion to the extent that it relates to the nonqualified use period of the residence. Generally, the nonqualified use period is any period, other than the portion of the period before Jan. 1, 2009, that the property is not used as the principal residence of the taxpayer or spouse."

Since it does not spell out that the second home was used as a rental property, would this mean any appreciation up until the date the home was converted to a personal residence? Anyone know?

Kevinh5 (talk|edits) said:

24 July 2008
I don't know, but it will be impossible to measure unless everyone goes out and gets an appraisal 12/31/08.

NYEA (talk|edits) said:

24 July 2008
The Joint Committee on Taxation has an explanation.

Try this link: http://www.house.gov/jct/x-63-08.pdf

Scroll down to page 62 for the start of the explanation

CrowJD (talk|edits) said:

24 July 2008
Wasn't there something else in there about vacation homes also?

Death&Taxes (talk|edits) said:

24 July 2008
Thanks, NY!!!! So it isn't the 'Appraisers Relief Act of 2008!' What this does is take a major planning tool out of play. What this also says is that with capital gains at a low rate, it might spur some to sell second homes held for a number of years in 2008, if they can find a buyer....or hold them until death.

EZTAX (talk|edits) said:

24 July 2008
I am confused by example number 2 in the link NYEA gave above. Sounds like if you live in the home and then rent it out you still get the full exclusion but if you rent it out first and then move in the exclusion is prorated. Is that how others are reading this?

Death&Taxes (talk|edits) said:

24 July 2008
Here is the answer, EZ: For purposes of determining periods of nonqualified use, (i) any period after the last date the property is used as the principal residence of the taxpayer or spouse (regardless of use during that period), and (ii) any period (not to exceed two years) that the taxpayer is temporarily absent by reason of a change in place of employment,health, or, to the extent provided in regulations, unforeseen circumstances, are not taken into account.

Another point to soothe the hurt, "A period of nonqualified use means any period (not including any period before January 1, 2009) during which the property is not used by the taxpayer or the taxpayer's spouse or former spouse as a principal residence.

Emphasis added by DT

So maybe this is much ado about nothing, at least for now. Presumably if a client rented the home since 2000, moved into it in 2012 and sold it in 2014, the first eight years would mean nothing to the equation, but the remaining six would be in the calculation. It is obvious that they are trying to get rid of the 'Serial Seleer', the person with a number of rentals who could conceivably sell all as residences

Trillium (talk|edits) said:

31 July 2008
Adding for future searchability: "Housing Assistance Tax Act of 2008."

Taxguy1024 (talk|edits) said:

4 August 2008
Why do we need an appraisal at 12/31/08?

Kevinh5 (talk|edits) said:

4 August 2008
I was mistaken. We don't.

Think2much (talk|edits) said:

7 August 2008
Death&Taxes wrote: "Presumably if a client rented the home since 2000, moved into it in 2012 and sold it in 2014, the first eight years would mean nothing to the equation, but the remaining six would be in the calculation."


The years before 2009 do not count when determining the nonqualified use periods, but do they count towards the ownership period? In the above example, is the denominator in the allocation fraction 14 or 6?

Anyone who can clarify this point? Thanks.

Riley2 (talk|edits) said:

7 August 2008
According to Internal Revenue Code § 121(b)(4) and the Committee reports, the denominator is 14 years.

Death&Taxes (talk|edits) said:

7 August 2008
So what would the numerator be?

Solomon (talk|edits) said:

7 August 2008
Numerator of 12? Think Riley meant years rather than months.

If there were an office in home, upon sale would that area be prorated as non-qualified use?

Okie1tax (talk|edits) said:

7 August 2008
I thought that the formula was to determine the non-qualified time, and that before 1-1-09 did not count. So, the way I read it is the numerator would be 4. I.e., for the above periods, the non-qualified number would be 6 years after 09 minus the 2 years qualified use over 14 years of ownership.

Death&Taxes (talk|edits) said:

7 August 2008
That is how interpret it also, Okie. At least we don't have to deal with this until at least 2009.

Solomon (talk|edits) said:

7 August 2008
Oops. Forgot about starts 01-01-09.

Riley2 (talk|edits) said:

7 August 2008
Correction. Denominator for the example is 14-years. This is written right into the statute. See Internal Revenue Code § 121(b)(4)(B)(ii).

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