Austin Texas Homes

Tax Alert: the recently passed Housing and Economic Recovery Act contains a tax pitfall for investors and possibly move-up buyers.

For investors, move-up buyers and property owners whose property has increased in value this legislature may not be an economic stimulus or economic recovery for you. The legislation may increase your taxes,so be very aware and plan around it.

Changes affect:

• Tax-Free Exchanges – 1031 Exchange
• Capital Gains calculations
• Converting property to or from personal use to second home or investment property
• Investors
• Move-Up Buyers
• Buyers
• Sellers

Investors: Certain “1031″ exchanges will be affected. Please consult with an attorney, a professional tax consultant or financial planner. Complete your transaction before December 31. 2008.

Move-Up Buyers: If you are a move-up buyer and your personal residence has been used as a second home or rental property you will be affected. Time is short to avoid falling under the new capital gains tax law>Complete your transaction before December 31, 2008.

Buyers: You do not know what the future holds. If you should suffer a temporary reverse in finances and needed to rent your home to get through the difficulty the new capital gains structure could affect you. The same is true if you should get a job transfer and converted your home into a second home or rental. It is wise to consult  a financial planner or tax professional if these or other circumstances would occur.

Sellers: If your personal residence has been used as a second home or has been used as a rental the change in how capital gains are calculated will affect you. You will pay capital gains taxes on a ratio basis: how many years as a personal residence vs. second home/rental.

Under the old tax structure, savvy real estate professionals (and homeowners) were able to take advantage of the guidelines to help existing home owners move-up, relocate, turn their home into an investment or convert an investment property to a personal residence. How that is done and the taxes that will be paid have changed.

The new tax structure will take effect on January 1, 2009. Please consult a skilled tax accountant. If you plan correctly you may be able to save thousands of dollars in taxes! Investor, buyer, and seller this new tax structure can affect you

If you are considering a move which will involve converting your property to or from a personal residence to a second home or rental please be sure you work with a Realtor® who is “investor” savvy and is current with the recent tax changes.

Finances are always very personal and, like homes, no two situations are exactly alike. I am not a tax attorney, tax consultant or a financial advisor. However, I do know real estate and I do know that the capital gains tax is an important issue for investors, buyers and sellers.

Related Articles:
Investor Report: Hidden Tax Pitfall
The Housing and Economic Recovery Act
Housing and Economic Recovery Act of 2008 REvealed