CAPITAL GAIN TAX LAWS - Ouch - Under the new Act
The American Housing Rescue and Foreclosure Prevention Act of 2008 (HR 3221), the Section 121 rule (excluding principal residence capital gain tax) will not apply to the extend gain from the sale or exchange of a principal residence is allocated to periods of "nonqualified use" after 12/31/2008 (even if the 2 our of 5-year rule is met). Simple English -- there will now be a pro-rata reduction of the Personal Residence Exclusion for any periods deemed "non-qualified" after 12/31/2008.
The use of a residential as rental property or as a vacation home is non-qualified. The property now has to always have been your primary residence.
Read the entire article by Marianne K. Kingman, JD, LLM in the
Residential Executive Magazine, pages 32 and 33.