Update on Tax Reform - Sale of Personal Residence

12 Replies

Hi All, I was reading through the new proposed bill by the House Ways and Means committee on tax reform. There was an important change to the exclusion on the sale of a personal residence proposed that would affect people flipping houses. Currently if you live in a property as your primary residence for 2 out of the past 5 years you can qualify to exclude up to 500,000 in gain from the sale of that personal residence. However, the new proposed tax bill would change this to alter the holding period to 5 out of the past 8 years and would be phased out for those earning over 500,000. If passed in its current form this would become effective for all sales happening after 2017. See link to the House Ways and Means proposal here 

https://waysandmeansforms.house.gov/uploadedfiles/...

Interested to get peoples reactions on if this will stand and become enacted. 

Wow that's terrible for those who house hack in terms of live-in flips. I don't think people would be patient enough to wait 5 years instead of 2. Since this affects such a small portion of the population, which would be mainly investors, I don't see the media covering it at all or lobby groups protesting its change. 

On the flip side, I could see some people who would be OK with 5 years and this would just force some people to sit on their homes for longer periods of time, which would continue to contribute to the housing shortages we see today. 

Bad for military and corporate relo folks too. This combined with the interest deduction limits could hurt the higher cost areas.

If they increase it to 5 years there’s going to be a lot of resistance. I expect this to disappear in revisions.

Wow! This is bad news. Last July I bought a home that I am remodeling extensively. The plan was to live there for 2 years after the remodel and then sell and keep the gain with no taxes. But if this new tax bill passes, I will have to stay for five years.
Here is my question; I have not yet moved in. I do not think it will be ready for me to move in before the end of the year. What can I do to establish proof of residence before the end of the year when the new tax bill might be passed so that I could be grandfathered in under the current exemption laws?
Some ideas; I could get my drivers license changed to the new address. I could have the utility bills sent to that same address instead of my current home. I could have new checks made up with that home address on them. I could also possibly have the post office deliver my mail to that address. Any other ideas?

Well this has been the absolute best tax treatment for us west coast and high value market folks .. I have done this 4 times and was planning on a 5th in 2018.

now in the old days if you replaced your home you sold with one of equal or greater value

@Bob Okenwa

  I think a lot of house hackers just move out and keep that property as a rental.. so this would not affect them.

who this affects is folks like me who have run up 500k equity exceed the annual income limits and want to retire.. and down size.. its an anti califorina tax  LOL.

So for people to think this tax plan is only helping the higher earners  I see it the exact opposite. 

Originally posted by @Jay Hinrichs :

Well this has been the absolute best tax treatment for us west coast and high value market folks .. I have done this 4 times and was planning on a 5th in 2018.

now in the old days if you replaced your home you sold with one of equal or greater value

@Bob Okenwa

  I think a lot of house hackers just move out and keep that property as a rental.. so this would not affect them.

who this affects is folks like me who have run up 500k equity exceed the annual income limits and want to retire.. and down size.. its an anti califorina tax  LOL.

So for people to think this tax plan is only helping the higher earners  I see it the exact opposite. 

You make a very good point Jay. Didn't even think about that, but it makes sense. I was only focused on those who wanted to do live-in flips. 

Originally posted by @Sherry Byrne :

Wow! This is bad news. Last July I bought a home that I am remodeling extensively. The plan was to live there for 2 years after the remodel and then sell and keep the gain with no taxes. But if this new tax bill passes, I will have to stay for five years.
Here is my question; I have not yet moved in. I do not think it will be ready for me to move in before the end of the year. What can I do to establish proof of residence before the end of the year when the new tax bill might be passed so that I could be grandfathered in under the current exemption laws?
Some ideas; I could get my drivers license changed to the new address. I could have the utility bills sent to that same address instead of my current home. I could have new checks made up with that home address on them. I could also possibly have the post office deliver my mail to that address. Any other ideas?

You already closed. The law as written would apply to sales after 2017... i.e., not yours. 

Thanks, Tom. But I own many houses. Ownership does not mean primary residence. Just because I closed on the house last year does not mean it is my primary residence.

Originally posted by @Sherry Byrne :

Thanks, Tom. But I own many houses. Ownership does not mean primary residence. Just because I closed on the house last year does not mean it is my primary residence.

I just re-read the proposed new law. It would apply to sales/exchanges after 2017... not acquisitions. I'm no tax attorney but doesn't that mean your new acquisition would never qualify for the 2 years out of 5, regardless of when you do occupy it as primary? Instead it sounds as if the new law would affect people who currently qualify for 2/5 exemption ... because they would lose it as of 12/31/17 and thereafter would need to satisfy 5/8.

My plan was to live in it 2 years and then sell it with no tax consequence. Now I will have to live in it 5 yrs to get that same tax exemption. UNLESS I can prove I live in it as my primary residence before the law takes effect.

Originally posted by @Sherry Byrne :

My plan was to live in it 2 years and then sell it with no tax consequence. Now I will have to live in it 5 yrs to get that same tax exemption. UNLESS I can prove I live in it as my primary residence before the law takes effect.

That's not how the proposed law reads. The relevant date is the sale/exchange date, not the date a property becomes your primary residence or the date a bill becomes law.  

But we're talking about a law that may never pass... so 

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