If you frequently buy and sell property, this is something you need to know. The Housing and Economic Recovery Act of 2008 includes important changes to the Capital Gains Exclusion Rule. What does this mean for frequent homesellers?
In the past, homesellers could claim $250,000 of home sale profits tax-free ($500,000 if filing jointly) provided they physically lived in the home for 2 of the previous 5 years. Property owners were often advised to stay in their homes for at least 2 years to take advantage of this exclusion. The new law, however, is not all or nothing – the exclusion is now a calculated ratio:
In other words, if a home seller occupied a property as a primary residence in 2 of the last 5 years, under the new system, he would be entitled to 40% of his capital gains tax-free versus 100 percent of those gains before the new housing law passed.
For full details:
http://www.themortgagereports.com/2008/08/with-the-new-ho.html