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Sunday, July 04, 2010

Obama Health Care, 3.8% sales tax on the sale of any real estate you own

For all of you who supported President Obama’s new health plan … if you read the small print there’s a new tax on home sales that will become the law in 2013. It levies a 3.8% Sales Tax on Real Estate transactions: for a house with a sales price of $400,000 that tax bill will be $15,200. How’s that for hope and change? He neglected to tell the American people about that little tax when he was pitching his New Deal.


Anonymous Anonymous said...

"Tax on Home Sales. Imposes a 3.8 percent tax on home sales and other real estate transactions. Middle-income people must pay the full tax even if they are “rich” for only one day – the day they sell their house and buy a new one."

This won't affect most people I know because home values have dropped dramatically. Most people owe more than their home is worth so they will be lucky to break even let alone become rich for one day when they sell their home.

4:05 PM  
Anonymous Anonymous said...

4:05 PM

This will effect ALL home sales. The final price paid, even if it is lower, you still will have to pay a tax.

1:56 AM  
Anonymous Anonymous said...

1:56 you are wrong. This will not affect all home sales.

The Facts.
•There is a new 3.8% tax in the bill.
•It is not a “sales tax” on all real estate transactions.
•It is a Medicare tax.
•Many people will not have to pay this tax.
The new Medicare tax on real estate sales is actually a tax on investment income for so-called “high earners.” The income requirements are clearly spelled out in order to define “high earners” – $250,000 for married couple filing jointly, $125,000 for couples filing separate returns, and $200,000 for everyone else. If your income is above these levels, you will be paying a new tax on investment income. If it falls below that, you will not be taxed.

With that in mind, a 3.8% Medicare tax on the sales of a $400,000 home would be $15,200, which is a lot of money to pay in tax. This is where many people’s calculations have gone astray however, as the real estate “sales tax” is not on the entire amount of the sale. Instead it is on the amount of income that exceeds the capital gains threshold ($500,000 for married couples filing jointly, $250,000 for single filers).

Real world examples.
Example #1: Meet Bob and Susie, a couple who make $300,000 in income a year. They have a beautiful home that they sell for $2 million, this nets them $750,000 in profit (sale price of the home – commissions and fees – price they paid for the home = profit from the sale of the home). Because they are defined as “high earners” (making more than $250,000 a year for a married couple), they will be required to pay the Medicare tax.

Calculating the tax:
proft from the sale – capital gains threshold = taxable investment income
taxable investment income x 0.038 (3.8%) = tax due

Using the above formula, Bob and Susie would plug in these values:

profit from the sale: $750,000
capital gains threshold: $500,000 (married couple filing jointly)
taxable investment income: $750,000 – $500,000 = $250,000
tax due: $250,000 x 0.038 (3.8%) = $9,500

Example 2: Meet Frank and Cindy, a married couple whose combined income totals $200,000. They are selling their home for $400,000. Frank and Cindy are excluded from the 3.8% tax because they do not meet the “high earner” criteria (income of $250,000 or more).

Example 3: Frank (from Example 2) gets a promotion and begins making $50,000 more a year. This pushes Frank and Cindy’s combined income to $250,000, which now qualifies them as “high earners.” They finally sell their home for $400,000, but after paying their mortgage and the fees associated with a real estate transaction, they take home $50,000 as profit from the sale of their home. They are again excluded from the tax thanks to the capital gains threshold of $500,000 for married couples filing jointly (they would need to take home $500,000 or profit more from the sale of their home to be required to pay the Medicare tax in the health care bill.

1:35 PM  

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