Trying to Understand the New Capital Gains Laws

Recently I wrote a post discussing the new ‘Housing Relief Bill’. While there are many facets of this new bill, one that had me concerned was the changes to the Capital Gains Law. There is some confusion about the interpretation of the law that is being discussed in various blog forums.

The bill actually may not have the broad impact originally thought. Keep in mind that the old law allowed for an investor to buy a property and rent it out and as long as they moved into that investment rental or second home and claimed it as their primary for 2 years – they would qualify for the $250,000/$500,000 capital gains exclusion. That ability may have gone away.

If you originally lived in the property and it then became a rental, the old $250/$500 rule still may apply. Kathleen Pender of the San Francisco Chronicle, outlines this nicely under the Vacation Homes section of her write up.

From my perspective – this is better than I thought. But I still don’t like it. Why are we discouraging from profitable investment? If an investor is willing to move into the property for two years, it’s clearly not a flip and get-rich-quick scheme. Investing helps to fuel the real estate market and the economy. I still don’t see the housing relief in this.

And – oh yeah – can we make this more complicated?

Shameless disclaimer – Please know that I’m not an expert in taxes. You should discuss these questions with your professional Accountant or CPA.