NOTE: This post was re-posted with permission from Lori Dwyer with PrimeLending. I have been working with Lori for two years now, and I highly recommend her to anyone considering obtaining home financing. Please give her a call today and then call m
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What it Means When You Sell Your Home
“The new health care legislation imposes a 3.8% tax on all home sales.”
“If you sell your home for $400,000, you’ll pay a $15,200 ‘sales tax.’”
“Middle-income people will pay the full tax even if they’re only ‘rich’ the day they sell their home.”
What the Law Really Says
One of the provisions of the Patient Protection Affordable Care Act (PPACA) health care legislation makes so-called “high-income” households subject to a new 3.8% Medicare tax on investment income beginning in 2013. All the misreporting arose because this provision is contained in a complicated section of a complicated piece of legislation. But here are the facts:
Most Home Sellers Not Affected
Experts tell us most people selling their homes won’t be impacted by this new regulation. Your home sale would have to make you a so-called “high earner” and here’s what that would take. For example, a couple will be subject to the 3.8% tax only if they made MORE THAN $500,000 profit on the sale of their home. And if they did, the 3.8% tax would apply only to the part of that profit that was ABOVE $500,000. So, if their profit were $600,000, they would have to pay $3,800 of that as tax–3.8% of the $100,000 profit above the $500,000 threshold. Their net profit would still be: $596,200.
3.8% Medicare tax is not a tax on all real estate sales. Instead, it is a tax on investment income that may result in an extremely small percentage of home sellers paying additional taxes on their home sale profits above the designated threshold amount that applies to them ($250,000 for individuals, $500,000 for couples).
It has been estimated that the bill’s definition of “high earners” includes less than 5% of all taxpayers. In addition, as of March 2011, the median existing home sale price was $159,600. So, mathematically, only a small percentage of home sales will likely be affected when the Medicare tax is implemented in 2013.