Thinking about buying a 2nd home? The annual number of [tag]second home[/tag]s purchased in the United States doubled between 2000 and 2004, according to new research. The boom is being driven in part by [tag]demographics[/tag] — mainly a flood of equity-laden [tag]baby boomer[/tag]s — and in part by a largely unexpected ricochet effect of tax law changes in the late 1990s
When [tag]Congress[/tag] amended the federal tax code in 1997 to permit up to $500,000 (for married couples) and $250,000 (for singles) of gain on the sale of a [tag]primary home[/tag] to be spared from taxation, observed Chung, “homeowners did not have to buy expensive [replacement] homes anymore.” Under prior law, the only way to avoid [tag]capital gains tax[/tag]es was to ”roll over” sales gains to progressively larger and costlier homes. The amended tax code, by contrast, allows primary home sellers to buy ”a smaller, less expensive primary residence,” while using a portion of the $500,000 or $250,000 tax-sheltered gain to buy or make a down payment on a second home — for use either as a recreational property or as an investment vehicle.