Is There Really a 3.8 Percent Home Sales Tax in 2013?

US Federal Tax FormsThis question continues to arrive in my email box with a number of clients concerned that the new healthcare legislation imposes a 3.8 percent transfer tax on all homes sold after 2013.

According to the National Association of REALTORS® (NAR),

The 3.8% tax is imposed ONLY on  those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000 on a joint return).  The tax applies to investment income, defined as interest, dividends, capital gains and net rents.  These items are all included in an individual’s AGI.  A formula will determine what portion, if any, of these types of investment income would be subject to the tax.

NAR also states that this is not a transfer tax on real estate sales and that the new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence.  Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.

So while there is a new tax in the healthcare law, it is not a transfer tax and will not apply to all sellers of real estate. Sellers are encouraged to discuss their particular circumstances with a CPA or their tax preparer prior to listing their homes for sale.  

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Thinking About Selling Your House After 2012?

Healthcare Law

I received an email from a past client today. He had received an email on the subject.

The email read, “Did you know that if you sell your house after 2012, you will pay a 3.8% sales tax on it?” The email goes on to blame the new Healthcare Law and all the damage it will do to the housing market.

Like many email hoaxes, it’s based on a partial truth. Within the new Healthcare Law there is a provision for a 3.8 percent capital gains tax on real estate sales. The reality is that this will not apply to many sellers. Currently the law allows an exception of up to $250k for single filers and $500k for a married couple filing jointly.

So while this will not apply to most sellers, I don’t think it’s a great idea. The main issue is that once they start the taxing it may be easier to move the bar down and tax more and more sales in order to generate revenue for the Federal government.

For the time being most sellers do not to be concerned about paying the 3.8 percent “Healthcare Tax” when they sell their homes. Sellers should always contact their CPA, tax preparer, or attorney if they have concerns or questions.

Tom Branch, Broker, CDPE, SFR

Base Photo licensed from iStockPhoto