New Condos Downtown San Diego - Bailout Update for Real Estate

Bailout Creates Problems for Some

We have all heard about the bailout that is supposed bail us out...duh.  Well, I am sure in some instances it is going to be great, but it is not great for everyone.  If you purchased a downtown condo and now have it rented out due to the market upheavals, you need to know some changes in the tax rules that are coming down January 1, 2009.  Previously, an owner like you could have lived in your condo for two out of the last five years and been able to exclude up to $250,000 of your profit when you sold.  That rule has changed.  The new rule is now a ratio.  In other words you may be able to shelter only a portion of your gain.

Here is an example of what I mean:

Suppose you bought a condo for $200,000 five years ago.  You moved out of it three years ago so you could buy your new home.  You are now renting the condo you bought for $225,000.  Your profit is $25,000.  Under the old rule you would owe no tax.  Under the new rules effective 2009 you will only be able to shelter 40% of your gain, which means you will owe capital gains tax on 15,000 of your profit.  The formula is the number of days the condo was "primary" divided by the number of days you owned the condo.  This will give you the percentage of your exclusion.  In the above example, the exclusion was 40%, so 40% of $25,000 is $10,000 exclusion, meaning $15,000 is taxable.

If your condo was more expensive, then your profit might be larger when the market changes and you do sell.  This is only one of the changes in the "bailout", so you can see there may be some other unpleasant surprises.  Stand by because we will let you know what we know.

I try to stay very non political in this business.  No sense in annoying people unnecessarily.  However, in this political season it is hard to stay neutral.  All I can say is be careful what you wish for.  You may think you are voting for "change" and you may find out it is a much worse change than you ever anticipated.  Spreading the wealth around means it is going to come out of your pocket and go into someone else's pocket.

That's my political dissertation for today.  Thanks to Chicago Title for the above example.  If you would like to read the bill yourself you can go to the Bailout Bill here.

By Sharyn & Victoria Crown, Downtown San Diego real estate agents

This is part of a series of articles entitled, New Condos, Downtown San Diego Style