Deciding where to live
Choosing the right builder
Shopping for quality and value
Tax advantages of building a new home
Maintaining your new home and it’s value
Taxes

Buying a new home is one of the smartest investments you can make. One reason is that
homeownership has many positive tax implications. Because of changes to the tax code
passed in 1997, married home owners do not have to pay taxes on up to $500,000 in
capital gains realized on the sale of their homes. The $500,000 provision applies to
married home owners filing joint returns and is restricted to homes sold on or after
May 7, 1997. To qualify, the home would have to have been used as a principal
residence for at least two of the previous five years. Taxpayers who file individual
returns may claim up to $250,000.

The previous law also allowed for a one-time capital gains exclusion. Home sellers who
were at least 55 years old could realize a tax-free gain of up to $125,000 if the home
had been used as a principal residence for at least three of the previous five years. Under
the old law, home sellers could use their capital gains exclusion only once after turning 55.
Under the new law, people over 55 who have already used their exclusion can take advantage
of the new tax provisions, assuming that they have occupied their new residence for at least
two of the previous five years.

First-time buyers also benefited from a special provision of the new tax law. One of the largest obstacles to homeownership usually is the inability of potential first-time buyers to save enough money for a downpayment. In 1997, Congress passed a new provision allowing first-time buyers to withdraw up to $10,000 from their IRA accounts if the money is used for a downpayment on a home. The penalty-free provision can be applied to IRAs owned by the buyers, their parents or their grandparents. Under current law, early withdrawals from an IRA incur a 10 percent penalty when not used for a downpayment.