Years of rapid home price appreciation along the northern Front Range will leave homeowners in the region more vulnerable to changes in the tax code now before Congress.
Coloradans need to be aware of one change in particular that could have big implications for them when it comes time to sell — an extension in the time owners must occupy their homes to avoid paying capital gains taxes.
“Homeowners across the country should pay attention. You will find the biggest effects, however, in your biggest, more expensive markets,” said Danielle Hale, chief economist with Realtor.com.
Right now, owners must have lived in a home for at least two years within the last five years at the time of sale to avoid paying capital gains taxes on any increase in value up to $500,000. For most homeowners, that means holding on to a home for at least two years is a good idea.
But Congress, looking for ways to generate more revenues to pay for cuts elsewhere, wants to extend that to five years within the last eight years. That would force most homeowners to wait five years or more to avoid a tax penalty that could reach into the tens of thousands of dollars.
Much attention has been paid to proposed caps on deductions for mortgage interest and property taxes, differing versions of which are included in the Senate and House plans. While that change may only affect wealthier homeowners, it could lower home prices across the broader market and push second-home owners in places such as Colorado’s high country to sell.
But the change that will have the greatest impact on average homeowners is likely to be the longer holding period required to avoid capital gains taxes, said Lou Barnes, a senior loan officer with Premier Mortgage Group in Boulder.
“This one will surprise people. …read more
Source:: The Denver Post