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They are changing the holding/ownership period from TWO out of the past FIVE years, to FIVE out of the past EIGHT years.
Wow. That's a huge deal for many future retirees who expect to cash out their current home tax-free on the gain, if they haven't owned it for five years.
Worse part...it takes effect on any sales made after 12/312017....less than 2 months from now!
4 SEC. 1402. EXCLUSION OF GAIN FROM SALE OF A PRIN-
5 CIPAL RESIDENCE.
6 (a) REQUIREMENT THAT RESIDENCE BE PRINCIPAL
7 RESIDENCE FOR 5 YEARS DURING 8-YEAR PERIOD.—
8 Subsection (a) of section 121 is amended—
9 (1) by striking ‘‘5-year period’’ and inserting
10 ‘‘8-year period’’, and
11 (2) by striking ‘‘2 years’’ and inserting ‘‘5
12 years’’.
How many future retirees would buy a home and sell within 2 years ?
There's no guarantee of a profit unless you intended to flip.
Moving to 5/8 from 2/5 might just what the RE market needs.
Flippers won't be so attracted seeing they have to tie up their money for 5 years.
Might open the doors to first time home buyers who can renovate over time.
Would also stabilize neighborhoods since people have to stay invested for at least 5 years.
Investors and flippers have created huge price bubbles in RE and that is not a good thing.
For retirees the rule change as noted above should have limited impact. At any rate planning five years in advance shouldn't be to much to ask. The problem might be a job transfer that requires relocation in the years leading up to retirement. Could mean selling the old home and renting in the new location.
How many future retirees would buy a home and sell within 2 years ?
There's no guarantee of a profit unless you intended to flip.
Moving to 5/8 from 2/5 might just what the RE market needs.
Flippers won't be so attracted seeing they have to tie up their money for 5 years.
Might open the doors to first time home buyers who can renovate over time.
Would also stabilize neighborhoods since people have to stay invested for at least 5 years.
Investors and flippers have created huge price bubbles in RE and that is not a good thing.
Maybe not 2 years, but certainly within less than 5 years.
In our case, we bought a home in 1998 for 370K. We were ages 46 and 47, thinking we'd retire by age 60 if lucky. Lo and behold my employer offered an early out in 2002 and I took it at age 50 1/2. We cashed out our home for 675K, tax free.
My main issue with this longer holding period is the SURPRISE!! aspect. They put out a plan in November that becomes effective in the very next month. This is a big tax overhaul and needs to be parsed a lot closer than the GOP did.
For retirees the rule change as noted above should have limited impact. At any rate planning five years in advance shouldn't be to much to ask. The problem might be a job transfer that requires relocation in the years leading up to retirement. Could mean selling the old home and renting in the new location.
If you sell the old home you'd pay a hefty tax bill on any gain. More likely the person would either turn down a good job offer, or, take the offer and have to deal with their former home as either a long-distance rental or a vacant house far away.
Maybe not 2 years, but certainly within less than 5 years.
In our case, we bought a home in 1998 for 370K. We were ages 46 and 47, thinking we'd retire by age 60 if lucky. Lo and behold my employer offered an early out in 2002 and I took it at age 50 1/2. We cashed out our home for 675K, tax free.
My main issue with this longer holding period is the SURPRISE!! aspect. They put out a plan in November that becomes effective in the very next month. This is a big tax overhaul and needs to be parsed a lot closer than the GOP did.
And it seems it worked within the current guidelines. If it were 5/8 would you have stayed in the home another year before selling to also take advantage of the guidelines ?
You have to remember that the current rules only came into effect in 2009.
Prior to that they were more strict about gains on home sales.
And it seems it worked within the current guidelines. If it were 5/8 would you have stayed in the home another year before selling to also take advantage of the guidelines ?
No I was anxious to retire and leave DC-Metro and start our retirement adventure. Plus upon retirement our income went from 400K a year to 70K a year (but lots of taxable retirement accounts).
In current environment...lots of folks bought in 2013-2014 when the market stabilized and the fear of losing money in real estate wore off. Many of these could be near retirement age. Do they sell now and take the tax hit? Or do they sit with fingers xxx'd that this run-up in housing prices (hot in many many areas) holds for another few years??? Lots of people thinking real estate is due for a big downward adjustment soon.
BTW, we bought our first home in DC-Metro in 1989 for 79K. As we earned more money, we sold and bought a higher priced home. We held at least 3 homes less than 5 years. Back then as long as your next home was greater value, you could defer gain. Doing this and ultimately making a big gain on the last house, gave us the security to retire young.
Aside from raising federal revenue, what is the "societal benefit" to putting the kibosh on this long-term "flipping"?
It would slow down gentrification (possibly to the point of elimination), since gentrification is based on two things: risk-reward ratios and mobility.
This would undercut both of the things that have transformed poor or blighted areas and would require the addition or increase of new "redevelopment" funds or subsidies to mitigate. I wonder how they are going to sell this?
Also it slows the growth rate of state and local tax revenues as well, especially in jurisdictions that have constitutional taxpayer protections like California.
But hey, maybe the social benefit is less money in the hands of California bureaucrats and other such miscreants.
It is not quite as simple as the two tests mentioned above and when Congress gets through with it, there could be the same, more, or less exceptions to the general rule.
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