by John Darer CLU ChFC MSSC CeFT RSP CLTC
The Housing and Economic Recovery Act of 2008 ("HERA")
The Housing and Economic Recovery Act of 2008 ("HERA") was signed into law on July 30, 2008. Included in HERA 2008 was an amendment to Internal Revenue Code Section 121 ("IRC 121") designed to preclude taxpayers from excluding the gain on the sale of a residence attributed to periods of "nonqualified use" (i.e. any period after 2008 when the residence is not used as a principal residence).
What Was the Loophole that was Closed by HERA 2008?
The purpose of the IRC 121 amendment was to close the loophole that permitted a taxpayer to sell a primary residence and utilize the full home sale capital gains tax exclusion ($250,000 for single, and $500,000 for married taxpayers); then convert an existing vacation or rental property into a primary residence, satisfy the two of the five year residency requirement, and then sell the new primary residence and again utilize the full home sale capital gains tax exclusion.
The closure of the loophole meant an added capital gains exposure which may be mitigated through the use of a structured installment sale (a/k/a "structured sale).
"When One Door Closes, Another Opens…"
How Does IRC Section 121 Read in 2025?
Section 121 provides that, under certain circumstances, gross income does not include gain realized on the sale or exchange of property that was owned and used by a taxpayer as the taxpayer's principal residence. Subject to the other provisions of section 121, a taxpayer may exclude gain only if, during the 5-year period ending on the date of the sale or exchange, the taxpayer owned and used the property as the taxpayer's principal residence for periods aggregating 2 years or more.
For more information about structured installment sales please contact John Darer at 888-325-8640
More about Structured Installment Sales for Real Estate or Business Interests
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Last updated April 24, 2025
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