The 1997 Taxpayers’ Relief Act applies to any sale of a principal residence made on or after May 7, 1997. Couples filing a joint return can exclude up to $500,000 of gain on a sale of a principal residence. Single return filers can exclude up to $250,000 of gain. The savings from the exclusion may be a source of cash for individuals to use for retirement, investing or any other purpose.

In order to qualify for this exclusion the following rules must be followed:
• For couples, the home must have been used by both spouses no less than two of the last five years.
• For single taxpayers, the home must be used as their residence for at least two of the last five years. These years to not need to be consecutive.

There is no limit to how many times a taxpayer can that this exclusion.
• Gain in excess of applicable exclusion ($500,000 or $250,000) is taxed at the appropriate capital gains rate. This should be reported on Schedule D (Form 1040) Capital Gain and Losses.
• Exclusion does not apply to vacation or second-home properties.

It should be noted that in the opinion of some this law is the most significant tax-saving opportunity for home owners. The opportunity to receive tax free income by not having to pay taxes on realized gain multiple times by selling a principal residence that complies with the above rules is . . . . HUGE!

HOWEVER, how long will this credit last given the size of our current Federal deficit?

MISTAKE 1: Shopping before budgeting. People who start exploring kitchen renovation ideas without first ailing down how much they can spend often wind up with a dream kitchen – at a price they cannot afford.
Better: Decide on your budget before going into a showroom. Then, for each kitchen component – countertop . . . appliances . . . lighting fixtures . . . flooring . . . cabinets . . . select a ‘top choice’ and a corresponding “I could live with that” alternative. Ask yourself which one truly justifies the cost.

MISTAKE 2: Making everything built-in. We forfeit a portion of the money we invest in renovation each time we move. Buyers will pay extra for a home with a renovated kitchen, but usually not enough extra to fully compensate for the money we put in.
Better: spend as much of your renovation budget as possible on components that you could later take with you to a new home. Rather than install a kitchen island, purchase an attractive table that can serve the same purpose. Rather than invest thousands in high-end cabinetry to hold your dishes and cookware, invest in top-quality cookware and beautiful dishes that you will have for years.

MISTAKE 3: Attempting a full renovation on a limited budget. If a tight budget means that you cannot have the new kitchen you want, you may not be satisfied with the ‘cheaper’ result and want to renovate again in a few years.
Better: If your budget is limited invest your money in one, two or three new kitchen components that you truly love. Install new lighting . . . update the appliances . . . or refinish existing cabinets and add new knobs and drawer pulls. Make sure the new components have a place in your dream kitchen so that investment fits a more complex renovation later on.

MISTAKE 4: Installing an island sink. It has become common to install a small sink in a new kitchen island as a supplement to the room’s main sink.
Better: Don’t bother. Plumbing in an extra sink is likely to add $1,000 or more to your renovation bill and detract from the counter space of the island.