The 2008 housing law put new restrictions on a popular tax technique for homesellers who convert a second home into a principal residence. Beginning in 2009, you may be taxed on the gain attributable to the “nonqualified use” of the home. But you still may escape unscathed through a little-noticed loophole.
Strategy: Establish the home as your principal residence. Then stop using the home as your main home after two years. Result: Any subsequent nonqualified use won’t count against you.
You still may qualify for the maximum home-sale exclusion for a home converted after 2008.
Here’s the whole story: If you sell a home that has been your principal residence for at least two of the past five years, generally, you can exclude up to $250,000 of gain from federal income tax ($500,000 for joint filers). This is not a one-time deal—you can pocket the maximum exclusion multiple times as long as you qualify.
But there’...(register to read more)