National Review reports:
Currently, the tax rules for independent landlords are simple. If you live in your home for at least two out of the five years before you sell it, you get a large exemption ($250,000, or $500,000 for married couples) from the capital gains tax when you sell. This provision has provided a small encouragement for millions of people thinking about whether to buy. Along with a host of other market factors and tax incentives (the mortgage interest deduction, for example), this exemption has played no small part in the increase in American homeownership and wealth that we have seen over the last decade. It is also providing a three-year life raft for homeowners like the friend described above.Charlie Rangel's little surprise that could have a huge affect on the real estate market.You might say if Rangel gets his increase, the demand for second condos isn't go to be what it would be.It might get very complicated trying to figure out what part of the capital gain you owe a tax on.So complicated you might not want to ever rent out your house or condo because of the hassle factor later on.We wonder if Rangel means if you lived in the property 50% of the time you only get an exemption on 50% of the gain?
But Rangel wants to change that. Under his bill (H.R. 3648), the two-year/five-year exemption is scaled back, starting in January. If you rent out your home, any gain in home equity during that period becomes taxable. You are only exempt from paying capital gains taxes for appreciation you enjoy during the period when you actually live in your residence.
