To Put The Rumors To Rest

There has been all kinds of speculation about whether or not the national health care bill included a tax on the sale of real estate.  Google it and you'll find a lot of fire breathing going on about this subject. Without getting into the politics of this in any way, I'm going to share with you the word from a very well respected accountant (who shall remain nameless).  Breathe easier home owners, it's not what some have been saying.  Here's the word from an expert:

First, there is no national sales tax. Remember Congress has not acted on how the states can collect sales tax from Amazon and eBay, let alone nationally.  Because Congress has not acted, states like Indiana have reached agreements with Amazon that pushes collection to 2014 in order to give Congress time to act on an internet retail tax. Of course, our Congress will not act on anything.

Second, the interpretation of those who say a tax is included is twisted. In the healthcare bill there is a 3.8% surtax (“Medicare Contribution Tax”) on the investment income of higher income earners.  Individuals with adjusted gross income (AGI) over $250,000 when filing joint, and $200,000 when filing single are considered high earners. The surtax applies to unearned income (interest, dividends, capital gains, royalties, and rents). The statute specifically excludes “gain on the sale of a principal residence.”

So can there be a 3.8% tax on the sale of a primary residence – in short no....with one exception.  The sale of a primary residence is not fully exempt from the surtax. If the gain on the sale is over $250,000 for a single individual, or over $500,000 if filing joint, then the 3.8% surtax can kick in if over the income limits.

Can a taxpayer selling real estate be affected by the 3.8% tax – yes. If they have AGI over the high earner limit, sell an investment property such as a vacation home at a gain (sales price less cost) creating a capital gain.  The tax does not apply to the entire sales price (unless the seller has no cost in the property).

You can think whatever you like about the healthcare bill but this much is clear.  Virtually no one who reads this will have to worry about paying taxes on the sale of their home anytime soon because of the health care bill.  Now go get your mulch ordered, will you?  Spring is just 67 days away in the Midwest.