3.8% Real Estate Tax in the Health Reform Bill? I have been getting a lot of upset people asking me about this tax.
Facts:
- Yes there is a 3.8% tax in the Health Reform Bill.
- It's not a "sales tax" on real estate transactions.
- It is a Medicare Tax on investment income for so-called “high earners.”
- Many people "will not" have to pay this tax.
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
- $200,000 for everyone else.
If your income is above these levels, you might be paying a tax on investment income. If it falls below that, you will not be taxed.
Most people think that there is a 3.8% Medicare tax on the sale of a $400,000 home which would be $15,200. This is why many people think of it as the real estate “sales tax”. There is a tax but the tax is not on the entire amount of the sale. It is on the amount of income that exceeds the capital gains threshold. Currently the capital gain threshold is $500,000 for married couples filing jointly, $250,000 for single filers.
Example:Here is how to calculate the tax to see if you will need to pay.
1- You and your spouse make $300,000 year. You sell your $2,000,000 home and net $750,000.
- take the sale price of $2,000,000
- minus commissions, fees and any improvements you made while living there
- minus what you paid for the house
- equals $750,000 net profit
- minus capital gains threshold of $500,000
- equals $250,000 taxable profit
- $250,000 x .038 (3.8%) =$9,506 in taxes
2- You and your spouse make $300,000 a year. You sell your $600,000 home and net $100,000. In this case you will NOT pay taxes because your net profit was under the $500,000 threshold.
Bottom line. If you DO NOT make over $250,000 in joint income you have nothing to worry about. If you do make over $250,000 you might have to pay taxes.
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