I.  Tax Law for Homeowners

Just to clarify:  We are not tax experts.  But, we do have some information on the subject of taxes as, it applies to your home.

If you own your home and have been faced with the potential of a large tax hit from selling it, you will love the new tax law, which has been in effect for several years.  Let's hope politicians do not change it.  Unlike most of the complicated grab being put together in Washington, the provisions dealing with the sale of personal residences promises to achieve both simplification and tax savings.

II. Here is what you can expect 

Capital Gains Tax

No capital gains tax.  The $250,000 in gains, or $500,000 if filing jointly, will be exempt from tax.  Just be sure to live in the home for two out of the previous five years and keep your profits under the new "caps".

No more rollovers

Up until now, homeowners would sell at a profit and then buy a new home of equal or greater value in order to avoid a gain.  All of those rules are going to disappear on future purchases.  The only losers in this will be those who have built up greater than $500,000 in gains and decide to move.

III.  Senior discount is history

No more waiting until you are 55 years old.  The senior discount is history.  If you are one of those, who in the past have taken the one-time $125,000 exemption, it will not stop you from using the new rules from here on out.

Buy and sell every two years

No more once-in-a-lifetime elections.  You can buy and sell every two years and avoid tax on the capital gain each time.  The new law is written to be retroactive to sales after May 6, 1997.  As anticipated, the proposal to allow a capital loss deduction , if you lose money on your home, was abandoned.  That is too bad the way the economy and the down housing market is today.

What can we expect from all of this?

First, it will free many trapped homeowners.  Trading up has been encouraged by existing tax law, but it has resulted in many people buying and keeping home that are more valuable than they need.  For these people, tax considerations from a home sale have decided where they live.  Even if you are mortgaged to the hilt a sale will not result in a taxable gain in most cases.

No more tracking the tax basis 

Second, it will eliminate much of the confusion and paperwork of tracking the "tax basis" of homes.  Under present rules, the gain from one home is rolled into the basis of the next home.  Mix in the improvements from the time you first bought and the computation can be very burdensome. 

Large scale tax simplification

Third, forget large-scale tax simplification.  With this extra benefit and all the other "goodies" that Congress had spread around, whole new armies of voters have a stake in keeping our convoluted tax structure in place.

Dan and I want to wish all of you a wonderful holiday and a fantastic 2012.  It is always remarkable to me how very fast the years fly by.  Just keep doing what you love to do, challenge yourselves and live life to the fullest everyday.  It goes fast!

Ann

Please no questions about this article.  We discuss everything about your retirement, with great detail, in our classes.

Next Month:  Voluntary Contributions (CSRS only)

Secrets to a long, happy life:

Be conscientious.  An 80-year study found one of the best predictors of long life  is a conscientious personality.  Researchers measured such attributes as attention to detail and persistence.  They found that conscientious people do more things to protect their health and they tend to make choices that lead to stronger relationships and better careers.

Be friendly.  Friends not only contribute to happiness, they also encourage good health.  People with strong friendships are less likely than others to get colds, perhaps because they have lower stress levels.

Be forgiving.  This one is very important and sometimes hard to do.  Letting go of grudges has surprising physical health benefits.  Chronic anger has been linked to decreased lung function, heart disease, stroke and other ailments.  Forgiveness, on the other hand, can reduce anxiety, lower your blood pressure and help you to breathe more easily.

Be calm.  Stress can be deadly.  The body responds to stress by releasing stress hormones.  These hormones make blood pressure, heart rate and blood sugar levels go up.

Taken from WebMD