There are people who continuously change their homes by selling off their old homes and buying a new one. These people always change their homes by selling their homes to buy the new ones, which are more expensive than the previous. Owing to the property tax, such actions often eat up a large portion of the profits they earn by way of buying and selling houses.
You may wonder that how can they sell off the house to buy a more expensive house. For example, you buy a house at $50,000 in the year 2002. By the year 2005, the same house will cost $1,00,000. Thus you can buy a house more expensive than the original $50,000. This tax exemption rule was created in 1997 to provide relief to tax payers and hence is known as Taxpayer Relief Act.
Let’s take a quick look at how this system works. You take a small loan to buy your first house. You live in the house for two or more years before selling it off. On the profit you earn, you get a tax exemption depending upon the prevailing tax bracket. The only conditions are that you are supposed to live in the house for a minimum of 2 years as the owner. You can get a partial exemption if you had to stay out of the house due to divorce or unforeseen events like death etc.
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