Fourth Quarter, 1997
Since my last update, the local real estate market continues to be "red hot". In most areas of Santa barbara, it is a Seller's Market characterized by a shortage of available housing and strong Buyer Demand. Prices are moving upward, especially in the lower price ranges.
New Tax Bill
The most significant news affecting the real estate market (and the reason for the slight delay in this newsletter) is the new tax bill. This bill creates significant incentives to own and transfer real estate, including capital gains tax exclusions on the sale of a principal residence, and a reduction in capital gains rates.
Sale of Principal Residence
The new tax bill allows couples up to a $500,000 capital gains exclusion ($250,000 for unmarried) on the sale of a principal residence where the owner has resided at lease 2 of the last 5 years! Any profits over these limits will be taxed at a new lower capital gains rate.
New Capital Gains Rate
Capital gains have been lowered from top rates of 28% to 20% (and from 15% to 10% for those in the lower tax brackets). Effective July 29, 1997 assets must be held at least 18 months to qualify for the capital gains treatment.
Incentives to Sell
These two new significant changes offer tremendous incentives to sell houses and other real estate investments. Now may be an excellent time to "cash out" or move down into a smaller home. For specific questions on these new tax laws and how they may impact you, please contact your tax advisor.