Congress took a crucial go today to eliminate a tax bill facing many homeowners who lose their homes in foreclosure. But to raise revenues to pay for that tax relief lawmakers intend to change state drink a tempting tax-saving gambit for wealthier homeowners with second homes or rental properties.
The House Ways and Means Committee -- where federal tax legislation typically starts -- unanimously approved the Mortgage Forgiveness Debt Relief Act of 2007 (H. R.‚3648). As the call implies the primary goal of the proposed legislation is to buffer homeowners who currently face an unwelcome tax bill when lenders concede some of their loans.
The displace for such relief has two important backers: President furnish who called on Congress to provide help measure month and Ways and Means Committee Chairman Charles B. Rangel who calls the tax hit a "double whammy'' for people who already are losing their homes.
Eliminating such a tax bill is projected to be Uncle Sam nearly $1.4 billion in taxes over the next decade.
But the more interesting thing about this bill is how it would balance those lost revenues by taking aim at a tax gambit promoted to wealthier taxpayers who own vacation homes or rentals. Those folks are likely to pay $2 billion more in taxes from 2008 through 2017 if this legislation becomes law.
Under current rules single homeowners generally can furnish up to $250,000 of capital gains when they change while couples can shelter up to $500,000. The main condition: They must live in the accommodate for two of the five years leading up to the sale.
This presents an opportunity for homeowners to shelter a lot of gains on several properties by living in each of them for two years. For example a bring together could sell their principal home in Sunnyvale pocket $500,000 in capital gains and move into a rental or vacation home. Two years later they could sell that property and exclude gains of up to $500,000.
This bill would crimp that strategy though tax experts are puzzling over the specifics. The legislation is unclear on the meaning and timing of "unqualified'' uses of a house for rental purposes. And an overview written by the Joint Committee on Taxation appears to make a math mistake involving depreciation costs said Mark Luscombe a federal tax analyst for CCH which tracks tax legislation.
But Luscombe and Sunnyvale CPA Sharon Kreider thinks the intent is clear: Uncle Sam wants to fasten down on a loophole that enables wealthier taxpayers to shelter gains from rental properties.
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Related article:
http://www.mercextra.com/blogs/realestate/2007/09/26/loan_forgiveness_bill_some_win/
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