New Tax on Home Sale Misinterpreted

New Tax on Home Sale Misinterpreted

We live in an era of instant information from a variety of sources like no other in history. However, those same outlets are often the source of misinformation aimed at turning public opinion one way or another. The direction of that misinformation is determined by those who are paying to have it disseminated.

A case in point. A while back I received an email from a realtor friend who was upset by an email he received that stated if you sell your house after 2012, you will pay a 3.8% sales tax on the total sale price of your home as a result of the 3.8% Medicare Tax in the Affordable Care Act of 2010, better known as Obamacare. The source of the information was supposedly a national real estate organization. That email is scaring a lot of people – and it is wrong.

As any knowledgeable CPA will tell you, the Affordable Care Act actually places a 3.8% tax on net investment income, which includes the taxable portion of gains from the sale of a personal residence. But the gain is not taxable until after a $250,000 exclusion for an unmarried homeowner or $500,000 for a married couple.  Any amount above those exclusions would be taxable as net investment income. So, if you bought your home for $200,000 and sold it for $450,000, there would be no additional sales tax as a result of the Affordable Care Act. 

According to that email, however, if you sell your primary home for $100,000 you will pay a tax of $3,800, or $15,200 if your house sells for $400,000. This is especially frightening to older homeowners whose major financial asset is their home. And it is simply not true. A second home, on the other hand, will be taxed on the total gain when sold.

Before you accept information from the internet as accurate, it’s a good idea to check with your financial advisor. Chances are you will be happy you did.

Beau Weisman, Editor