"It may also have the effect of depressing the market for vacation property, something that legislators may not have intended," Luscombe says.
One congressman is bothered by that possibility. "The damage caused by raising taxes on second-home owners won't appear immediately," says Rep. Kevin Brady, R-Texas, whose East Texas district includes several recreational lakes dotted with second homes.
"I am concerned that in the long run, this tax increase could hurt the resale value of second homes," says Brady, "making them less attractive as an investment and possibly damaging the local economies of retirement and vacation communities."
Timing is everythingThe tax considerations of vacation-home owners, in Texas and across the rest of the United States, are part of the second reason why the change in the home sale law might not raise as much money as lawmakers had hoped.
People tend to alter their behavior to fit their needs, especially when taxes are involved.
"They'll just hold onto the houses until death and the basis will be stepped up for their heirs, who can sell for no capital gains," Olivieri says.
The new second-home sale law also grants an exception for "nonqualified use," or any time when the home wasn't your principal residence, if the house's original use was as your main home. A period of absence generally counts as qualifying use if it occurs after the home was used as the principal residence.
This exception could come in handy, for example, if you moved but were unable to sell your home because of a slow real estate market. Although technically the property is no longer your main home, since it started out that way, you don't have to factor out that nonresidential time, or nonqualifying period in tax-speak, when you do eventually sell and realize a gain, says Scharin. Of course, you do have to meet the other home sale exclusion rules, such as living in the home as your main residence for two of the five years before the sale.
A new loopholeThe special tax status granted to homes that started out as principal residences, regardless of how the property is used subsequently, also creates a new tax loophole.
There's a way, says Olivieri, that current owners of both a primary residence and a vacation home can sell the properties and claim the full tax exclusion amount for both. He offers this example:
You have two homes, one clearly a primary residence and the other clearly a vacation home. In 2009, you move out of your principal residence and into your vacation home. You don't have to sell your original principal residence yet, just move out of it.
Live in what once was your vacation house, but now your main home long enough to meet the two-year residency rule, then sell it and claim the full gain exclusion. Remember, if you have a gain in excess of the $250,000 or $500,000 exclusion amount, you still owe tax. But there's nothing to prorate because you converted it on the new law's effective date.
When you move back to the original primary residence, you can sell it and claim the full exclusion as long as you meet the tax rule that didn't change: You live in it as your main home for two of the past five years before the sale. You can't move in after 20 years, sell the next day, and get the full exclusion.
"You don't have to prorate the exclusion to any period that it was not your primary residence if that period occurred after a period when it was your residence," says Olivieri. "It is a new loophole, but one that was intentionally done."