The Housing "Rescue" Bill Actually Has Incentive For Some To Sell Their Homes

Only from Congress.

Stuck with a second home you can't get rid of? Now, you are really screwed.

The massive 600 page tax bill, supposedly created to help get the housing market back on its feet, has a clause that will create huge incentive for some to sell second homes and thus put added pressure on the housing market.

Taxpayers have played hopscotch, moving from home to vacation home to the next home, etc. and avoiding income taxes on the sale of each one, according to Eva Rosenberg, founder of TaxMama.com . That free ride is at an end.

The personal resident exclusion is still good on your personal home. However, you'll be paying taxes on the sale of your vacation home, or rental property converted to a home or any "unqualified" home. As with anything coming out of Congress, the calculations of the taxes owed will be complicated to determine.

The tax will be based on the amount of days the house was not a qualified personal residence divided by the total number of days you owned it. This ratio is multiplied by the amount of gain realized on the sale of the property.

The new law defines unqualified use as:

any period after the last date the property is used as the principal residence of the taxpayer or spouse (regardless of use during that period), and

any period (not to exceed two years) that the taxpayer is temporarily absent by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances, are not taken into account.

This law becomes effective January 1, 2009. Thus, this creates huge incentive for those who are considering selling their vacation or other second homes to sell them before the first of the year, creating even more supply in this weak housing market.