I thought I would share a very helpful post from my broker, Paul Culley from RE/MAX Select Realty about about some of the election year rhetoric that has been going on about a "sales tax" on homes. He did a great job of explaining the issue and included places you can go for more information so I wanted to share it.
It must be election time. Every so often the question regarding a 3.8% sales tax on home sales starting in 2013 comes up. Is it true? The answer is yes and no.
Let me lend a few thoughts and then point you to a few resources . . . Those who may be impacted by this provision is actually more narrow than the many email chains suggest, and some households will not be impacted at all. It might not feel like it, but there is still a LOT of time, politically, between now and January 2013, and it's difficult to predict what Congress may or may not repeal or alter.
The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers. The 3.8% tax is imposed ONLY on those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000 on a joint return). The tax applies to investment income, defined as interest, dividends, capital gains and net rents. These items are all included in an individual's AGI. A formula will determine what portion, if any, of these types of investment income would be subject to the tax. The tax is NOT a transfer tax on real estate sales and similar transactions. Not long after the tax was enacted, erroneous and misleading documents went viral on the Internet and created a great deal of misunderstanding and made the tax into something far more draconian than the actual provisions. The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax. If you feel it could affect you, seek the advice of your accountant or tax professional. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer. Visit the links below for additional in-depth information. The bottom line for home sales it's only on the capital gains portion of the proceeds.
NAR video > http://speakingofrealestate.blogs.realtor.org/2010/11/24/the-3-8-tax-is-not-a-real-estate-transfer-tax/
FAQs > http://www.realtor.org/small_business_health_coverage.nsf/Pages/health_ref_faq_med_tax?OpenDocument
Download a comprehensive brochure > http://www.realtor.org/small_business_health_coverage.nsf/Pages/health_ref_faq_med_tax?OpenDocument
NAR President's Podcast > http://www.realtor.org/about_nar/presidents_report/_podcast_archive/feb_21