Deep in the folds of the recently signed American Jobs Creation Act of 2004 – the same law that will allow residents of the seven states that don't levy a state income tax to deduct sales taxes from their federal income tax in 2004 and 2005 – is a subtle yet important change for homeowners who have acquired their principal residence via a tax-deferred exchange. The new law, signed by President Bush last month, includes a stipulation that the exchange property must be held for five years in order to qualify for the $500,000 ($250,000 for a single person) principal-residence tax-free exemption. "It may be disguised as a safe harbor for people who buy an investment property, rent it out for three years, then live in it for two years before selling it," said Kelly Yates, attorney and exchange specialist for Exchange Facilitator Corp. "Yet it appears that they are trying to clamp down on people who simply buy investment properties and then move in to them." In order to qualif...
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