ANSWER:
See Reduced Exclusion.

If you sell a home bought after 8/5/97, you must have a health or employment or special reason (not yet defined) to be allowed to use the pro-rated rule described below.

If you sell a home which you owned before the 8/5/97 date of enactment:

If you had done a prior tax free rollover, the holding period of the old home "tacks on" to the holding period of the new home.

• Example: I bought 123 First Street on 1/1/90. I sold First Street on 1/1/96, using the old 2 year rollover rule to trade into 456 Second Street which I bought on 1/1/97. Now, I want to sell Second Street, but I have owned it only 8 months.

  Good news: You are considered to have held Second Street since 1990 and therefore you meet the 2 year rule under the new law.

• Example: I bought my first home on 1/1/97. Now I want to sell, but I have owned it only 8 months.

  Good news: The new Tax Act says that if you owned a home prior to 8/5/97, the 2 year rule can be pro-rated as follows: you owned it 8 months. To get the full exclusion applicable to your status ($250,000 if single or $500,000 if married) you must own and use it as your principal residence for 2 years. 8 months is 1/3 of 2 years.

  You are able to exclude all your profit, up to one-third of the full tax free amount.

  For more information, see 1997 Tax Act
  Return to 1997 Tax Act Question and Answer Index
  Return to Real Estate Directory
  Return to Home Page