Large Price Increases Result
In Tax Hits for Home Sellers

By Tom Herman From The Wall Street Journal Online

A growing number of homeowners, riding the crest of the real-estate boom, are getting hit by an unpleasant surprise when they sell: a hefty tax bill.

This development stems from a 1997 law that Treasury Department officials said at the time would eliminate capital-gains taxes for nearly everyone selling their primary residence. Under that law, most married couples who file jointly can exclude as much as $500,000 of their gain. For most singles, the limit is $250,000.

But as home prices have surged, more people have been selling their home for bigger gains than the exclusion amount -- and thus are facing unexpectedly big tax bills, accountants and other tax professionals say. Besides getting hit by the top 15% rate on capital gains, some also are facing the loss of deductions, exemptions and credits. In some cases, they may even be drawn into the rapidly expanding web of the alternative minimum tax.

Many sellers are startled to hear they owe any tax at all because they didn't realize the 1997 law erased a popular provision that had allowed them to avoid taxes.

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~~~ If home price appreciation for the last few years has put you in this situation, give me a call today!