Very Few Will Pay 3.8 Percent “Sales Tax” on Homes – Despite misinformation

Posted on July 28, 2010 by IC N in Residential
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Very Few Will Pay 3.8 Percent “Sales Tax” on Homes – Despite misinformation circulating, only top 2 percent of population will be subject to tax

A big piece of legislation like the health care reform act understandably sparks a lot of questions. The massive law, officially known as the Patient Protection and Affordable Care Act, was signed into law by President Obama in March but it will take some time for the American public to understand the nature of the changes.

The law includes provisions about how the government will pay for health care services, one of which is a “sales tax” on real estate. This issue has caused some concern among real estate professionals and consumers alike, and it’s important to understand that, while this tax does exist, it’s unlikely to affect a wide portion of consumers. In fact, The Tax Foundation estimates that only the top-earning two percent of families in this country are likely to be impacted at all.

In short, information is circulating that homeowners will face a 3.8 percent tax on the profit they may earn when selling their homes. The reality is this:

* The 3.8 percent tax on profits from the sale of investments, which includes real estate, applies only to individuals who make more than $200,000 per year, or married couples filing jointly who earn more than $250,000 per year.

* For those who make more than the cut-off, the tax won’t be applied to the first $250,000 in profit from the sale of a personal residence-or $500,000 if a married couple sells their home.

* The exclusion for the first $250,000 in profit (or $500,000 for a married couple) does not, however, apply to vacation homes or rental properties. Those properties-only for those who exceed the income limitations-will be subject to the tax.

* This new rule does not take effect until January 1, 2013.

This blog at Factcheck.org by Brooks Jackson contains a lot of information that clarifies the 3.8 percent real estate tax situation. In it, the author quotes William Ahern of the Tax Foundation: “Some home sales would see a tax increase under this bill, but it would have to be a second home or principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).”

There are several resources available to you including some clarification from the National Association of Realtors.

AK Stout is a REALTOR in the Baltimore, MD area. She helps buyers and sellers navigate their real estate transactions.