Tuesday, July 17, 2012

Obamacare Taxes the Sale of Your Home at 3.8% (not)

Tax
I'm not on the email lists that pass around some of the most egregious misinformation about Obama and Obamacare. So, I haven't seen this one personally.  I need to get my conservative friends to start forwarding this stuff to me.  This particular rumor I've heard a few times. The rumor is that, after December 2012, if you sell your home, Obamacare is going to take 3.8% off the top.  It goes a little something like this:

Did you know that under the new health care bill all real estate transactions are subject to a 3.8% "Sales" tax?  You can thank, Nancy, Harry, Barack and (your local Congressman) for this.

If you sell your $400,000 home, this will be a $15,200 tax.
Remember Obama's battle cry, take from the workers and give to the drones.

So, let's see how much of this is true and how much of this is false.  True, there is a new tax under Obamacare (the Affordable Care Act) that will impact some homeowners who sell their homes for large gains.  However, it's not a sales tax.  It's not even a real estate tax.  It's an investment tax and it only applies if your gains are over a certain amount and your income is over a certain amount.  Like a lot of the tax code, it's fairly complicated. But, let's look at a couple selling their home as an example.  In the example above, any couple selling any home for $400,000 no matter how much they paid for it initially would not pay $15,200 for this tax.  They'd pay $0, zip, zilch, nada.

The tax is on investment income and is for couples making more than $250,000/year if they file jointly.  The tax is on the amount of investment income over $500,000 (for a couple).  So, who would pay this tax and how much? 

If a couple were making more than $250,000/year (a figure which excludes 97% of all U.S. households immediately) they might have to pay this tax.  The first thing to keep in mind is this tax only potentially applies to the top 3% of income earners.  Now, to have to pay the tax on the sale of a home, they'd have to net more than $500,000 from the sale.  So, let's assume this couple makes more than $250,000 and bought their home for $300,000.  They then sell it for $850,000.  Their gain on the sale of the house is $550,000.  So, they have to pay tax, not on the $850,000 sale price, not on the $550,000 gain but on the $50,000 gain over the $500,000 exclusion.  They would pay 3.8% of $50,000 or $1,900.  If you're making more than $250,000 as a couple and you anticipate selling your home for $500,000 or more above what you paid for it, look out.  This could cost you a couple of thousand dollars on the sale of a home worth more than $500,000.  Otherwise this particular tax will have no impact on you at all.
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8 comments:

Anita said...

It is important to know and understand a certain program like Obamacare before making any reactions. It's good that you explained the fee involving tax once this program has been approved and rolled out. Everyone needs an affordable health insurance, and everybody wants to pay lower taxes.

George said...

Actually, I talked to a realtor the other night and they said they had to pay the 3.8% on a $10K profit from a sale of their home. I'm not sure what their income is but its probably a lot then if its based on income. I see this eventually creeping into the lower income bracket people to help pay for Obamacare. When income taxes were first initiated in the early 1900's after the Fed was created, it only applied to the upper 1% of wealthy people. Look where we are now... Bottom line, Obamacare is designed to suck even more wealth out of us. It's theft on a grand scale..

brian said...

George,

Someone isn't telling the truth. The Medicare investment tax (the one we're talking about) doesn't even start until 2013. No one has paid it yet.

And, if someone were to pay 3.8% of $10,000, that means they sold their house for at least a $510,000 profit and they make more than $250,000 a year. I think they can afford a $380 tax on a $510,000 profit.

You say you can see this eventually creeping into lower income brackets. Of course anything could happen. But, it could just as easily not.

Bottom line, Obamacare is designed to insure more people. This is a minuscule tax on a very small percentage of people to help keep Medicare solvent. It only applies to very large capital gains and for people who are fairly wealthy. Your realtor hasn't paid it and isn't likely to pay it in this market- at least not on a house. Not too many people are showing half million dollar gains on home sales.

John said...

Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation becomes eff
ective in 2013,it may impose a 3.8% tax on some (but not all) income from interest, dividends,
rents (less expenses) and capital gains (less capital losses). Th
e tax will fall only on ndividuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI

kevin smith said...
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