I was talking with my husband’s boss and she told me about a
conversation with her pastor’s wife. The pastor and his wife decided to put
their house on the market as a short sale, now, because they were going to lose
$60,000 anyway and they wanted to avoid the 3.5% sales tax on real estate sales
in 2013. The pastor’s wife said that it was in the Obama Health Care bill. Whoa!!
I never heard about a 3.5% sales tax on real estate sales. NAR and MAR would be
all over that. I would have been inundated with calls to lobby my congressmen.
So I did what every conscientious person does, I “Googled” it. There is a 3.8%
tax on unearned net investment income (income that may or may not come from the
sale of property) for persons who earn more than the amounts specified in the
bill. Unearned
income is the income that a person derives from investing their capital. It
includes capital gains, rents, dividends and interest income. It also comes
from some investments in active businesses if the investor is not an active
participant in the business.
So here are some pertinent facts:
1. The 3.8% tax is not a tax on all real estate sales. It is
an investment income tax which could possibly result in high earning home
sellers paying the tax.
2. Only those person(s) with incomes over $200,000 a year ($250,000 for
married couples filing jointly) will be subject to the 3.8% net investment
income tax.
3. A person who sold their principal residence would be
subject to the 3.8% tax only if they made a profit of at least $250,000
($500,000 for married couples filing jointly) on the sale of their home, and
then the tax would only apply to the portion of the profit above the $250,000
($500,000 for married couples). 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" (principal residence) for at least two
years out of the five years prior to the sale.
Here are some reasons why most of us will not have to pay
the 3.8% tax:
1. The median price of a home (from June 2011 to July 2011) in the Midwest has slipped down to $146,300 from $147,700, and
fell 2.9 percent from the previous year. Obviously, none of those sales could possibly generate
a $250,000 profit, and so none would be subject to the tax.
2.
The Tax Foundation, in a report released April 15 2010, said the new tax on investment income (including real
estate) "will hit approximately the top-earning two percent of
families" when it takes effect in 2013.
Those
are the facts, just the facts. No hype, no partial truths. Most of us will not
be affected by this part of the health care bill. If you are affected by it,
“Congratulations” for being in the top 2%. I hope that this clears up some of
the misinformation floating out there in the cloud.