There's an interesting trend that's beginning to develop with some homeowners right now. The current tax law in the United States that allows homeowners to sell their homes and pocket up to $500,000.00 in profits tax free is creating some interesting options for people.

Of course there are rules about how long you must own the home for and how long you need to have lived in it, too. As I am a real estate trainer and not a tax expert, I suggest you refer to your own expert in this arena for how this law may apply to you and your exact situation.

But what some homeowners are doing is selling their home, pocketing the profits, and sitting on the sidelines and renting for awhile. These people are thinking that they might as well take the tax-free profit that's available to them right now, and not risk having their home drop in value as many people have been predicting might happen for sometime now.

All-in-all the people opting to do this are betting that any loss in annual tax deductions from home ownership will be more than offset by any loss in value that will be avoided if home prices drop substantially. They can then purchase a home at a later date when prices are lower, in anticipation of beginning another cycle of appreciating home values. And if they time it all correctly, they'll ideally have a large tax free gain coming their way again if they choose to sell the home at the right time.

This of course assumes that these people have extraordinary intuition about when home values will be peaking and if and when they'll hit bottom again.

Looking back through our history, home ownership used to be a steady, long-term investment decades ago in the United States. We never used to see these wide swings in appreciation and depreciation in home values that we've witnessed in many geographical areas over the past 35 years. With this in mind, some homeowners have decided to take what they've seen in these market cycles and utilize these trends in an effort to "time the market" in these up and down cycles. They figure they'd rather pocket up to hundreds of thousands of dollars in profits tax free right now, rent for awhile, and buy another home again when the prices are much more attractive.

Only time will tell if this strategy will be the right one for these people, or if long-term home ownership would still have been the best choice they could have made.

Published: April 14, 2004

Use of this article without permission is a violation of federal copyright laws.

Jim Gillespie, Ph.D., is America's Premier Real Estate Coach℠. He has over 20 years of experience in real estate sales and is a past president of three different real estate companies. His FREE real estate E-newsletter with tips and creative ideas to help agents make more money is now read by over 35,000 agents nationwide. You can subscribe to his FREE E-newsletter by visiting RealEstateSalesCoach.com or contact him at Jim@RealEstateSalesCoach.com.