Leavenworth vacation homes - new tax rules for 2009!

Owners of Leavenworth vacation homes or people considering buying a vacation home should be aware of some recent tax law changes that may effect you.

Before I go too much further, I have to state this obvious disclaimer.

I am not a lawyer, CPA, or tax professional. Please use the following information as a starting place for your discussion with a tax professional.

 

Photo by Mat Heaton

Photo by Mat Heaton

 

 

As many folks know, the profits on the sale of a primary residence have been excluded from income tax or capital gains tax for many years - up to $250,000 for an individual or $500,000 for a couple.  For most of us, that means we only pay local and state excise taxes when we sell real estate, because the real estate that most folks buy and sell is limited to their primary residence.

When you buy or sell a vacation home or an investment property, no such exemption exists. (Unless you are using a 1031 tax exchange and buying more real estate - which you probably should.)

However, some folks have figured out a way to avoid paying taxes on the sale of the vacation home as well. (Until now.)

Vacation home owners could sell their primary residence and claim the exclusion. Next they could move into their former vacation home and claim it as their new primary residence. They can't sell it right away, but after 2 years as a primary residence they could in fact sell it without facing any tax liability (up to the $250/500,000 limits).

Well folks, those days are gone.

As part of the Housing Assistance Act of 2008, designed to help homeowners facing foreclosures, the taxes due will now be based on the ratio of years it was a vacation home compared to the years it was a primary residence. (However, the years prior to 2009 will not be counted)

For Example:

George and Martha live in Virgina and  bought a vacation home in Cashmere with a nice Cherry orchard in 1996.  In 2012 they decide to sell the Virginia home and move to Cashmere for their retirement. In 2020 George decides that cherry trees are too much work and decides to sell the farm.

 

Headed off to this Vacation Home

Headed off to his Vacation Home

 

 

The years between 1996 and 2009 are not recorded as far as tax liability.

The years 2009-2012 are not exempt from tax liability. (3 years)

The years 2013-2020 the house was a primary residence and are exempt. (8 years)

Therefore the tax liability would be on 3/11 ths of the gains from the sale of the house.

One possible loophole:

According to an article on Bankrate.com owners of multiple homes may be able to  beat the system. There is a provision that allows you to reverse the original process and not pay taxes.

The new scheme works like this:

Move to your vacation home in 2009 and live in it for at least 2 years and sell it as your primary residence. Then move back to your original primary residence for at least 2 years and sell it.

Yes, this all gets very complicated very quickly, so consult your tax attorney or a CPA before you even start to make a decision on this.

Here is one attorney's take: Corporate Finance Blog

Comments

That should be a stimulus to home sales, or not! The government just can't seem to help with one hand without taking it away with another!

No one with money pays taxes, it is why we are trillions in debt and the markets are crashing...

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Allyson and Geordie Romer

Leavenworth real estate agents - Allyson and Geordie Romer

For over a decade, Allyson and Geordie have been serving clients in the Leavenworth-area real estate market. Together, they work tirelessly to stay on top of the regional market and present the most relevant opportunities to their clientele.

When not in the office, they can be found exploring the endless recreation opportunities of the area in all of its seasons.

 

Testimonials

 

Geordie provided excellent real estate representation! We appreciated his detailed knowledge of the market, his up front and honest approach, and his negotiation skills.
As reviewed on Zillow  – 

- Laura Anderson

 

 

As “west siders” looking for a getaway near Leavenworth, Geordie provided insight … his knowledge of design features important in a “snowy winter wonderland” was appreciated. Thanks Geordie!
As reviewed on Zillow  –
 

- Jean Stern

 

 

Geordie made this somewhat complicated transition easier for us…going above and beyond to help us work through issues that came up during the sale of our parents home. We appreciated his knowledge, attentiveness to details and his willing spirit.
Our family is grateful for Geordie!
As reviewed on Zillow  – 

- Terry Foster

 

 

Geordie was great in every way. We have been looking in the Leavenworth area for some time, and Geordie was absolutely the best for local knowledge, history and depth on neighborhoods, developments and the local market trends. He was very quick to respond (even when he was on his vacation) and worked very diligently to get all of our questions answered in a very timely fashion. We would recommend him highly to anyone looking to buy or sell a home. Very friendly, and helped us navigate all of the local options before we made an offer on the property that we purchased. Thank you, Geordie!

As reviewed on Zillow  – 

- Ryan Olsen

 

 

It was such a pleasure to work with Geordie and his wife, Allyson on our cabin purchase. They showed us a variety of locations, listened to what we wanted and helped us find the perfect match. Everything was smooth and not stressful, just relaxed and easy. We would definitely recommend Geordie and use him again if the need arises!

As reviewed on Zillow  – 

- Cammie Schlosser

 

Moving to Leavenworth?

Are you looking for a cabin or a condo in Leavenworth that your family can use as a home base when climbing, skiing or hiking around Leavenworth or Lake Wenatchee?

Maybe you rent a house here and have decided to stay, surprised how a summer of rafting somehow turned into seven years.

Maybe it’s time to escape the hustle of the big city (and its rain) and move to Leavenworth with its four seasons.

Maybe you bought a condo years ago, don’t seem to use as much, and it’s time to sell.

Whatever your motivation, we are here to help. If you are buying a home, the best place to start is with our Homebuyer’s Guide to Leavenworth.