A 3.8 Percent “Sales Tax” on Your Home?
Friday, July 23, 2010
Q: Does the new health care law impose a 3.8 percent tax on profits from selling your home?
A: Yes and No. The first $250,000 in profit from the sale of a personal residence won’y be taxed, or the first $500,000 in the case of a married couple. But investment property will be hit and those who have higher incomes will pay when selling their personal residences.
Starting in 2013, the 3.8% Medicare surtax would hit average, middle-class investors in real estate. A middle-class taxpayer who happens to sell real estate for a gain in a particular year would be liable for this new tax, regardless of how low his/her income might be in other, more typical years.
The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence - or to the first $500,000 in the case of a married couple selling their home. (The Internal Revenue Service says that to qualify for the $250,000 / $500,000 exclusion, a seller must have owned the home and lived there as the seller’s “main home” for at least two years out of the five years prior to the sale.)
Those who would have to pay the tax might include, for example:
A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
An “empty nester” couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the $500,000 exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.
- Scott Askew
Posted in: Intown Atlanta Real Estate News