Capital Gains on Real Estate in Boca Raton, FL

Boca Raton Real Estate

The Taxpayer Relief Act of 1997 offers a key capital gains change.How can you acquire a marketable asset which has a low down payment, have it appreciate over time, and by selling it, shelter up to a half-a-million dollars in tax-free capital gains to boot? New legislation passed by Congress and signed into law provides this tax-free rollover and a new strategy for the overall housing market. Effective for home sales after May 6, 1997, The Taxpayer Relief Act of 1997 allows non-married homeowners to exempt profits up to $250,000 from the sale of their homes; couples, up to $500,000 .

What used to be a once-in a-lifetime, tax-free $125,000 exclusion from capital gains has been eliminated.This capital gains change will alter the incentive structure for a large part of the economy. It allows homeowners who sell their principle residence up to $500,000 in tax-free capital gains every two years; reinvesting the proceeds into a new residence to claim the exclusion is no longer required. The only requirement is that the seller use the home as his principle residence for a period of 2 years out of the last five years prior to the sale . That means most homeowners will not have to pay tax on profit from the sale of their home or have to undergo complicated documentation of expenses to satisfy the IRS. Tax-sheltering profits is an important key to financial success.This new incentive should increase the demand for real estate for years to come.

The new law also encourages the long-term possession of high-ticket real estate as well as other capital assets. According to the Senate Budget Committee and the August 1997 Special Report from the IRS, tax rates on capital gains range from 8% to 20%, depending on income. Top rates are 20% for investments held for at least 18 months (12 months if sold before July 29, 1997); 10% for assets bought after the year 2000 and held at least five years. The top rates for joint filers with incomes under $41,200 are 10% for 18-month assets, 8% for 5-year assets.

The advantages of this new law :

It allows primary residence real estate to be bought and sold any number of times tax-free within the allotted $500,000 threshold. One can leverage his primary residence; most homeowners do it by taking on a mortgage. Investing in higher-leveraged, higher-priced homes allows the potential for greater tax-free appreciation. Because of leverage, your home should appreciate faster than money left in a 401K or similar investment program. If you invested similarly in a commodity using margins say at 5:1 or 10:1 ratios, you may not sleep as well. A home-equity line of credit may be established with the possibility of interest payments being deductible. Try doing this against your mutual fund portfolio for a favorable line of interest.

It increases demand to own real estate. With a rising real estate market, the trend for rolling over gains from lower-priced homes into higher-priced homes should ensue. Increased demand for housing should also cause prices to climb. The incentive to be invested in real estate should continue to have a sustained upward influence on the residential housing market.

Greater deductions for mortgage expenses lower your federal income tax bite. Taking advantage of possible increased capital gains in a rising market along with the desire to move up to a better house or a better neighborhood may incur a large mortgage. The larger the mortgage, the bigger the federal income tax deduction and the less you don't have to pay in federal taxes at the end of the year. Comparing this to the flip side, you can't deduct contributions to your mutual fund or other investments on your federal income tax.

Ihe new tax bill also reaches out to your heirs. Estate tax exemptions have been raised up to 1.3 million for family farms and businesses in 1998. For other estates, the exemption will rise to $1 million by the year 2007 allowing for a virtual tax-free gift to one's heirs.Your castle is a prime, tax-sheltered investment. As the implications of this legislation catch on, the demand for real estate should increase.

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