Tuesday, February 21, 2006

"24 - 36 - 60" Some Huge Numbers

Recently I was having lunch with a client to review their real estate holdings. We started discussing the merits of owning residential rental real estate and the long-term benefits of owning more than one property. Here's their story.

In November of 2003, my client decided to purchase a new residence closer to their business. I showed them how they could buy a new home with creative financing, and keep their original home for a rental.

However, we do not want to lose the tax-free benefits that the Internal Revenue Code 121 provides.

Look out if you make a mistake on this.

If you want to qualify for up to $500,000 tax-free on the profits of your principal residential sale ($250,000, if you are a single homeowner) then be sure you have owned and occupied the property as your principal residence for 24 of 60 months prior to the sale.

Here’s the kicker! You can rent the house for up to 36 months after you move, but if you don’t sell within the 36 month time frame… YOU LOSE your $500,000 tax-free sale exemption.

If you have any questions about making the right moves… consult your tax advisor.

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