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Debunking the 3.8% Real Estate Tax

By J. Philip Faranda

Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

October 04, 2010 02:46 AM

I ain't paying no 3.8% tax I got an email this morning from a well meaning associate about a draconian tax on real estate transactions supposedly due to start in 2013, and of course the editorial message of the email decries President Obama, Speaker of the House Pelosi, Harry Reid,and the rest of the Democratic leadership. The email has an image of a newspaper story from a paper I never heard of (The Spokesman-Review of Spokane, Washington) which must be included, I guess, for legitimacy. No liberal am I, but if we are going to decry any politician on the right or left, I think it should be for something that is true.

Here is the link to the Snopes.com entry on the email, which specifies that there will be no 3.8% tax on real estate transactions in 2013 or any other year for that matter. A federal tax on transactions in this age of short sales and negative equity would result in the storming of the Bastille and is antithetical to anyone who wants to remain in office. You just can't do it. Guess what? They aren't.

Currently, New York state has one of the absolute highest transfer taxes in the nation: .04%, or $1,600 on a $400,000 sale. Yes: less than half of 1%. For the federal government to impose a tax that is on a scale of a real estate commission it would mean they are increasing the New York transfer tax by almost tenfold. Absurd, and untrue.

Snopes indicates that a tax is proposed on high earners on investment income over extremely high thresholds, I wouldn't be in favor of that tax either, but if you are selling your $250,000 home in Pflugerville or Shamokin, you will not have to pay Uncle Sam an additional $9,200.

Update: The National Association of REALTORS has published clarification on why the myth is misinformation.

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Craig Rutman

Helping people in transition - Cary, NC

Raleigh, Cary, Apex area Realtor

I'm with you on this one Philip. If we're going to bash either the left or the right, it's best to have facts to support our assertions. Snopes is one of my first resources to debunk any rumors or myths that seemingly pop up on the internet every day.

Oct 04, 2010 03:04 AM

Mitchell J Hall

Manhattan, NY

Lic Associate RE Broker - Manhattan & Brooklyn

I'm not in favor of the proposed tax. It may hurt some NY sellers because many have incomes above $250K but it is only a 3.8% tax on the capital gain (above the $250K single $500K married cap gain exemption) less capital improvements, broker fee etc. only if your income is above $250K.

If it is passed and people have to start paying it - it would debunk the popular belief that everyone has negative equity in their homes.

Oct 04, 2010 03:26 AM

Valerie Duncan Stewart

(Metro First Realty) - Oklahoma City, OK

Real Estate Agent-Broker, OKC, OK

I am in complete favor of you doing your homework and investigative journalism on this reporting and falsifying of the facts. While i steer clear of political commentary on my part, I appreciate the fact finding mission you did for the general public regarding an issue that would send alarm bells throughout your selling community.

This is truly a public service announcement. Your audience should be thankful for your frank honesty and non-partisan take on this issue, irregardless of where you stand on the topic.

Oct 04, 2010 04:33 AM

Jack Mossman - The Nines Team at Keller Williams in Lodi

The Nines Team at Keller Williams in Lodi - Lodi, CA

The Nines Team in Lodi

Phil - I agree with Valerie's comments ... thank you for taking the time and expending the energy to bring this "confusion" to a public forum. I started (and will finish) a series on taxes prompted by the continuing question of new home buyers about ad valorem taxes. The research has challenged my opinion on the "rate" issue .... when you start adding the layers of taxes we as consumers pay to income tax and transfer tax levels ... the "tax rate" becomes unbelievable. I'm not sure what the solution will be - but I suspect that the grass roots will find a solution well before the members of the various halls of government, at any level.

Oct 04, 2010 06:27 AM

Trey Thurmond

BCR Realtors - College Station, TX

College Station , Texas Homes

I too appreciate this kind of information. Several people have come to me as a professional and asked me about the tax. Now I speak with a little bit of knowledge.

Oct 04, 2010 03:57 PM

Scott Hayes

(512) 786-8300 - Austin, TX

Realty Austin, Broker Associate

Phil,

It sounds bad, but when I heard about this tax, I thought I would blow it off, until all the yelling back and forth, and the truth came out after the air was clear.

I won't get in to politics either, but suffice it to say, I find the two major parties guilty of so much exxageration, innuendo and garbage, that is makes sense to take a breath or two. Thanks for the research and well written post.

Oct 05, 2010 09:44 AM

Mike Saunders

Retired - Athens, GA

JP - there has been so much misinformation about this going around, including on Active Rain. Hopefully people will be checking out your link before spreading the misinformation.

Oct 06, 2010 03:48 AM

Marnie Matarese

DWELL REAL ESTATE - Sarasota, FL

Showing you the best of Sarasota!

Verification is always important but try to look a little deeper than Snopes. For the most part they try to be accurate, but I would keep it as a secondary (not primary) source and do a little research myself before I accept their answers. They may not mislead us intentionally, and they do provide their sources. The problem is that they generally lean toward left leaning sources. They do have a slight political bias, so be careful to look elsewhere for neutral political answers. And of course, they are from California so they see things a bit differently from the rest of the country. LOL

Oct 07, 2010 02:05 PM