This is courtesy of Kathy Morrow at On Q Financial:
“Tax change for home sellers? This portion of the recently passed housing bill is raising some eyebrows, and takes effect January 1. Prior to the bill’s passage, homeowners could enjoy tax-free capital gains of up to $250,000 for a single person and up to $500,000 for a married couple if they used the home as their principal residence for at least two of the previous five years. Under the revised law, in the housing bill, a homeowner can no longer enjoy tax-free capital gains from the home during the years it isn’t the owner’s principal residence. For example, if a homeowner uses the house as a vacation home for three years and as a principal residence for the next two, the owner will have to pay capital gains taxes on three-fifths of the gain — which represents the three years the home isn’t a principal residence. Previously, the homeowner would have pocketed the entire capital gain up to the limit.”
So while downpayment assistance programs are getting most of the press, there are many “easter eggs” tucked away in this legislation that any homeowner must be aware of. Of course, consult your tax accountant for the impact this legislation may have on your particular situation.