Rumor Mill: Truth on New Real Estate “Sales Tax”
Rumors are spreading about a new tax on real estate that is part of President Obama’s healthcare law.
The new tax, which has been dubbed a real estate “sales tax,” has a lot of misinformation out about it. For example, many blogs such as the Spokesman Review accuse the new law of imposing a 3.8% tax on the sale of all real estate. Email chains such as the one quoted in the Attack Machine blog claim that the tax will affect all real estate transactions, like “that’s $3,800 on a $100,000 home.”
Such claims are untrue.
In the old days, all real estate transactions were subject to the capital gains tax, a tax on income from investments. President Clinton introduced an exemption to the tax for primary residences with a profit of $500,000. Now, profits under $500,000 for couples and $250,000 for individuals are exempt from the tax, currently at 15%. The new tax adds an additional 3.8% surtax to those transactions that exceed the exemption. Additionally, you must make at least $250,000 if married or $200,000 if single to even have the surtax affect you. The surtax only comes into force in 2013, so it doesn’t affect people for several years.
The National Association of Realtors has provided several examples to help clear up the difficulties. The following is one of them.
“A couple filing jointly with an income of $325,000 make $525,000 when they sell their primary residence. If the profit on the home is less than the $500,000 threshold ($250,000 for single taxpayers), none of gain would be subject to the surtax. But since the taxable gain is $25,000 above the $500,000 threshold, it is added to couple’s income, bringing it to $350,000. That’s $100,000 above the $250,000 limit for couples filing jointly. But the $25,000 taxable gain on the sale of the property is the lesser amount in this case, so the extra tax that would be due in this case would be $950, or 3.8% of $25,000.”
So there you have it. The new surtax only affects people who make $200,000 or couples who make $250,000 and who make profits of at least $250,000 or $500,000 respectively on their houses. In the current market, not too many people fall under that category and the tax isn’t even in force yet.
Oppenheim Law says that there is nothing to get too excited about.