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Tax Implications
By Perry D’Alessio CPA [D’ALESSIO TOCCI & PELL CPA] http://www.DaleCPA.com
For many medical professionals, a home is their largest asset. In addition, it is their largest tax shelter as well.
Historical Review
Certain costs of the purchase and ownership of the home are deductible expenses if the taxpayer itemizes (i.e. interest with total loan balance not to exceed one million dollars, interest on home equity loan interest up to $100,000, and property taxes). The law regarding the sale of a personal residence changed in mid-1997.
This change in the tax law has been one of the most overlooked by all taxpayers. The new law states that the first $250,000 ($500,000 for married taxpayers filing jointly) of gain from the sale of a residence will be free of federal income tax.
How to Qualify?
To qualify for this exclusion the medical professional taxpayer must have owned the residence and occupied it for at least two of the last five years prior to the sale. In addition, if the taxpayer does not meet the above requirement due to change in employment, health or various other reasons, s/he may receive an “exclusion” for a portion of the above amount. An added bonus is that the taxpayer may take advantage of this same exclusion again after a two-year waiting period.
Assessment
Compared to the old law where a taxpayer had to “buy up” into a higher priced home in order to defer the gain on sale of the old residence, this is a huge benefit. For healthcare professionals this is an especially fortuitous change in the law. Depending on the state you reside in a residence is, for the most part, creditor proof, this tends to be one of the investments that is maximized. The potential to reap rather large tax-free treatment is something to keep in mind.
Conclusion
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Filed under: Taxation | Tagged: home ownership, Sale of a Personal Residence | 1 Comment »
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