Friday, December 28, 2007

Changes in Tax Code

On December 20, 2007, President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648). Section 7 of this law addresses changes to the capital gains rules governing the sale of a principal residence after the death of one spouse. The capital gains rules state that married, joint-filing sellers of houses can exclude up to $500,000 of gain, and single-filing sellers can exclude up to $250,000 of gain on the sale of their home, provided they've used the property as a principal residence for a cumulative two of the previous five years.

HR 3648 addresses the issue of what happens if a spouse dies and the home is sold. Can the surviving spouse exclude $500,000 or only $250,000? Prior to the passage of this bill, the answer was, if the surviving spouse sold the home in the year of the spouse's death, they could exclude $500,000. HR 3648 extends this time limit to two years from the date of death.

Talk to your tax preparer to help assess whether or not HR 3648 affects you. Be sure they look at Section 7 which specifically addresses this issue.

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