Prior to 2008, people who owned or purchased investment real estate properties were given a high incentive to continue to invest. Rule of law then dictated that on investment property owned for five years an investor could claim it as their "primary residence" making it void of any taxes as long as they lived on it for at least two of the five years. The other three years they could benefit from rental income from the property and even sale of the property without having to pay ANY capital gains tax from the added profit or income. That all changed with the passage of HR 3648 in 2007.
Relatively New Bill Tightens Taxable Investment Capital Gains
When HR 3648 passed, another important tax break for, especially low level investors, was gone. At a time in American history when the real estate market needs investors, HR 3648 changed, for the worse, the investment property capital gains tax for all investors. Beginning in 2008, which was also the beginning of economic woes for the whole American economic system including the real estate markets, investors could only claim the investment property as 'persona' residence if it truly was their residence for the entire five years or full time they owned the property. The obvious change to the tax code made it harder for investors to claim any tax allowances or exemptions from profits they get from property they do not actually live in.
2008 Capital Gains Tax Changes Hits the Rental Area Hard
The hard-hitting change made it harder for land-lords and also for renters as the trickle down effect created higher rent in most all areas of the country and deterred many potential land-lords from renting or even thinking of investing in rental property. H.R. 3648 changed the 'face' of renting in America at a time when the severe economic crisis added even more burden to the 'little people.' Also, when foreclosures began to skyrocket and properties were vacated, the bill made the property uninteresting to potential investors and so we are in 2009 left with many properties that just aren't selling at all...but sit vacant while many families need a place to live.
1031 Exchange Offers Hope
A legal 'loop-hole' called the 1031 exchange offers some hope to investors who might face devastating taxes when they sell their property. 1031 allows investors to sell without taxes owed as long as the profit is immediately invested in purchasing other property.
HR 3648 is one of possibly many tax changes that, if repealed, could help further the American economy in a positive way.