Clearing Up Rumors About the 3.8% Healthcare Reform Bill Real Estate Tax

 

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It’s easy to understand the immediate hype that came about once the new Healthcare Reform Bill of two years ago resulted in a new real estate tax to be imposed beginning January of 2013. But a lot of the hype has been misguided. In fact, today I’d like to clarify exactly how and when the tax applies.

New Real Estate Tax Applies To Transactions With Capital Gains

Keeping in line with capital gains tax laws, single persons are exempt from taxes on up to $250,000 of capital gains and married couples exempt up to $500,000 of capital gains.

In other words, considering a home that was bought for $300,000 and then sold for $400,000 – there is a no capital gains tax for either a single person or married couple since the profit is only $100,000 on this property. Assuming you fall into the category of applicable taxpayers, you only pay taxes if you sold it for over $500,000 of your purchase price. Consider a home owned by a married couple that sold for $900,000. The $600,000 profit will result in a capital gains tax on $100,000 of the profit – the amount that exceeds the $500,000 limit. In this scenario if it were an unmarried seller there would be a capital gains tax on $350,000 of the $600,000 profit.

Tax Applicable Only For Higher Income Individuals and Couples

Many people have been under the impression that all home sales will be taxed – for example according to common misinformation the sale of a $300,000 home would generate ten to twelve thousand dollars in tax. The tax is not on your entire sales price. The truth is the only scenario that would amount to the additional 3.8% tax is when a seller will be paying a capital gains tax and they fall within the income guidelines of the new law.

Looking again at our example above, assuming the home sold for $900,000 and the seller is a married couple, on a $600k profit the additional tax is $3800 – not $27,000 as the current rumor mill might calculate.

The most important thing to keep in mind about the new tax is that it is only imposed on individuals that earn $200,000 or more annually or married couples with a combined income of over $250,000. None of this applies to most people – in fact over 97% of the American public falls below the criteria for this additional tax.