ANSWER:
Your present tax "basis" is computed by reducing the cost of your present home by all previously rolled over profit, increased by capital improvements.

See 1997 Act Worksheet.
QUESTION:
Do you really mean that I have to track through the past 50 years of homes to figure out my potential profit?

ANSWER:
Yes, but this answer should be on IRS Form 2119 attached to your 1040 for the year you sold your last home.

QUESTION:
OK, I looked at that form and found out my present home which cost me $700,000 has a basis of $25,000. What does this mean?

ANSWER:
If you sell today for $800,000, your total profit is $775,000. Since you are married, under the new law you pay tax on $275,000.

QUESTION:
But cannot I roll it into a new home?

ANSWER:
Rolling over is irrelevant. If you sell, you pay tax on $275,000, at the new capital gain rates.

For more information, see 1997 Tax Act
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