The ink is barely dry on the 1997 tax law, but creative accountants and tax lawyers already have spotted ways for homeowners -- and other real estate owners -- to reap benefits beyond what even Congress might have contemplated.
Tops on the list: Call it the serial home-sale strategy.
It could save some property owners hundreds of thousands of dollars over a period of years.
The technique has potential applicability to homeowners who also own a second house or condo, a vacation house or any rental residential property.
But anyone can use it.
Greg Jenner, a former Senate Finance Committee staff member who is now national director of tax policy for the accounting firm ++ of Coopers & Lybrand, discussed the concept in an interview the other day.
Now that homeowners who sell their principal residence can escape taxation on up to $500,000 of capital gains (if married and
The answer, according to Jenner: Once you sell your current home with zero federal taxes on your profits, you move into any second (or additional) residential property you own and convert that property into your principal residence.
Under the new tax law, you
Although Jenner says he originally assumed that the concept would have prime value "to Daddy Warbucks types who own several houses," he agrees that it would work for vacation homeowners or small rental-home investors as well.
The only hitch for rental-property owners, Jenner added, is that they'll have to comply with the new depreciation "recapture" rules in the 1997 tax law, exposing them to a 25 percent tax liability on a portion of their gains when they sell.
Here's how the serial sale
Say you're a homeowner and you've had outstanding luck with your real estate -- chalking up big jumps in the resale values of your principal residence and your beach house.
Under the revised federal tax law, the gains on your principal home qualify for the $500,000 tax-free treatment, but not the gains on your beach house.
Assuming you've never rented out the beach house or treated it as an investment property, the gain if you sold it today would be exposed to taxation at the new 20 percent capital gains rate.
How to reduce that exposure to zero?
Convert the beach house to your principal residence for two years -- if that's feasible for you -- and then sell.
