Email On Tax In Healthcare Bill Re Home Sales Misleading
Howard said
10:12 AM Feb 8, 2011
This morning, I received a copy of the following email which is being passed around, so I thought I would address it here.
"Will you ever sell your house? Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That's $3,800 on a $100,000 home etc. When did this happen? It's in the health care bill. Just thought you should know. SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill) Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013 If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes."
I edited out the irrelevant portions, but the bottom line is this.
Yes, the healthcare bill really does include a 3.8% tax that starts in 2013, but it is not as broad as the email indicates. The email is misleading and some statements are downright false.
There is a 3.8% Medicare tax on taxable investment income (which may include capital gains on the sale of a home) for those that have modified adjusted gross income of $250,000 for couples or $200,000 for singles. It is NOT a sales tax on the sales price of houses.
Under current law, couples may exclude $500,000 of profit on the sale of their principal residence and singles may exclude $250,000 of profit. The homeowner must have 1) lived in the residence 2 of the last 5 years, 2) not excluded profit from another sale within the last two years, and 3) there are certain rules if the home has been used for business purposes.
The additional 3.8% tax only applies to capital gains over and above those amounts (which will also be taxable at capital gains rates). AND it only applies IF the taxpayers have over $250,000 in modified adjusted gross income for the year for couples or $200,000 for singles.
So, if you don't have those levels of income, don't worry about the extra tax at all.
If you do have those levels of income, only worry about the extra tax IF you will be making a profit on the sale of your home over $500,000 ($250,000 for singles). Then, you might have to pay the additional 3.8% tax on the excess amount over $500,000 ($250,000 for singles).
Hopefully, that helps clarify things.
Note: If responding, please stay on topic. This one could get way out of hand if we let it.
dewwood said
12:01 PM Feb 8, 2011
Thank you Howard for giving such good clarification.
janieD said
11:05 AM Feb 9, 2011
This is a great example of how you need to vet what you read on the internet. Scare tactics abound out there. Thanks Howard for clarifying the truths from the not so true.
This morning, I received a copy of the following email which is being passed around, so I thought I would address it here.
"Will you ever sell your house?
Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That's $3,800 on a $100,000 home etc.
When did this happen? It's in the health care bill. Just thought you should know.
SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill)
Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013 If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes."
I edited out the irrelevant portions, but the bottom line is this.
Yes, the healthcare bill really does include a 3.8% tax that starts in 2013, but it is not as broad as the email indicates. The email is misleading and some statements are downright false.
There is a 3.8% Medicare tax on taxable investment income (which may include capital gains on the sale of a home) for those that have modified adjusted gross income of $250,000 for couples or $200,000 for singles. It is NOT a sales tax on the sales price of houses.
Under current law, couples may exclude $500,000 of profit on the sale of their principal residence and singles may exclude $250,000 of profit. The homeowner must have 1) lived in the residence 2 of the last 5 years, 2) not excluded profit from another sale within the last two years, and 3) there are certain rules if the home has been used for business purposes.
The additional 3.8% tax only applies to capital gains over and above those amounts (which will also be taxable at capital gains rates). AND it only applies IF the taxpayers have over $250,000 in modified adjusted gross income for the year for couples or $200,000 for singles.
So, if you don't have those levels of income, don't worry about the extra tax at all.
If you do have those levels of income, only worry about the extra tax IF you will be making a profit on the sale of your home over $500,000 ($250,000 for singles). Then, you might have to pay the additional 3.8% tax on the excess amount over $500,000 ($250,000 for singles).
Hopefully, that helps clarify things.
Note: If responding, please stay on topic. This one could get way out of hand if we let it.