3.8% "Real Estate" Medicare Tax

By
Real Estate Agent with 214.422.0729 www.SamIAmHouses.com

What ... there's a "3.8% Real Estate Tax" that came into effect January 2013!?!    


Yes, there is a new tax that is being tacked onto Real Estate transactions (sales), but it's really an Investment Income Tax and known as the 3.8% Medicare Tax


You see, when you sell your home, it's possible that you might have this extra tax, but NOT ALL Real Estate sales will have this tax.   In a nutshell, the 3.8% Medicare Tax is a tax on Investment Income, an income which is derived from the sale of the property. This tax will only be on transactions where the person selling the home EARNS more than the amount on the transaction AND the individual has an INCOME above $200,000 or couples who jointly have an income above $250,000.  

 

Most likely, the sale of your principal residence won't be subject to the 3.8% Medicare Tax. However, it is always best to consult with a tax advisor to see if this 3.8% Medicare Tax will apply to you. 
 
 
Here's 2 great PDF Pamphlets that the National Association of Realtor has created about the 3.8% Medicare Tax

 
 
 
In additon, here's an informative video from the National Assocation of Realtor's Director of Tax Policy, Linda Goold. 



 
 

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Comments (60)

Samantha Smith
214.422.0729 www.SamIAmHouses.com - Rowlett, TX
Sam I Am Houses, Simply Texas Real Estate

Thanks ya'll! I agree, after reading more about this Tax, it really isn't as scary as the media made it sound. There's lot of moving parts to how the Tax will affect those that it does, which again is why it's best to suggest to our clients that might be affected by the tax to consult their Tax Advisor.

 

Like Steve (#38) said, "no one wants to pay taxes". BUT like it or not, we have this new tax that will affect some of our clients. I wrote this post to break down the tax in simpleton terms & think that both the link to the NAR PDF Pamphlet as well as the NAR Video on this tax will be worth sharing with our clients & fellow agents. 

Feb 16, 2013 12:44 AM
Samantha Smith
214.422.0729 www.SamIAmHouses.com - Rowlett, TX
Sam I Am Houses, Simply Texas Real Estate

Michael (#34) ~ The Tax will be assessed when our clients do their Federal Income Taxes NOT at the Closing Table. 

Steve (#38) ~ Unfortunately, I think this tax will affect a lot of the people who have 2nd Homes. But again, there's lots of parts to the Tax's formula so your clients best move would be to talk with their Tax Advisors prior to selling to see just how this will affect them.

Feb 16, 2013 12:51 AM
Ron Buck
The Ron Buck Group - Laguna Niguel, CA
Associate RE Broker at Keller Williams Realty
Thanks for the helpful link. The problem is that once a law is in place it is much easer for lawmakers to tweak the numbers to increase their revenue.
Feb 16, 2013 01:09 AM
Edward Gilmartin
CRE - Boston, MA

Medicare tax is off earings from dollar one...this is not a tax that goes to fund medicare but is a tax to fund Obama care...it is purely arbitrary...some congressman plucked it from mid air...made it 3.8% because 4% was simply too high. Total garbage!

Feb 16, 2013 01:28 AM
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Just more fleecing of the American taxpayers.  This spreading the weatlh around, Robin Hood mentality gets really old.

Feb 16, 2013 01:59 AM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Just another hit on those nasty rich people. Everyone knows they don't deserve the money they've earned - or the money they've saved by living within their means.

Feb 16, 2013 03:32 AM
Cliff Keith
Golden Gate Sotheby's International Realty - Redwood City, CA
Redwood City Real Estate

Good post. This is a double edge sword. We are being taxed on being fiscally prudent, (not good), and we are stopping a possible out break of some sort that could kill us all, by allowing people to stay well with proper medical care. I distain it but I don't see any other solution. How do you get blood out of a turnip? It's sad.

Feb 16, 2013 03:58 AM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

there are a lot of hidden Obamacare taxes that will affect everyone....in my other world of scioence, there is a 2.1% tax on all medical equiment sales to help pay for this train wreck of legislation

Feb 16, 2013 04:26 AM
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Samantha, 

Great explanation... it scared the heck out of a few folks when they thought it was a new sales tax on the sales price.  

I don't like it, think it's obnoxious, but no choice.   

All the best, Michelle

Feb 16, 2013 04:27 AM
Annett T. Block
NextHome Connect Realty - Fort Lauderdale, FL
Your NextHome in Fort Lauderdale Beach
Thanks Samantha. I new about the new tax but I am not sure how it will be handled. Will it be on the HUD and paid direct or do the seller who "qualifies" und the new rule state on their income tax. Many second home seller will not be happy about this.
Feb 16, 2013 07:16 AM
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519
Sam, thanks for putting this out there. Seems to me that a majority of people won't be affected by this, but like you said, talk to your CPA!
Feb 16, 2013 07:20 AM
Erin Erickson
Coldwell Banker Bali Hai Realty, Inc - Hanalei, HI
Erin Erickson

Thanks for the post and for putting this information in front of me.  The brochures will be a valuable educational tool to give to my clientele.

Feb 16, 2013 08:58 AM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team
Hi Samantha, there is so much misinformation out there about this. It will affect only a few percent of sellers.
Feb 16, 2013 10:26 AM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Samantha,

There has been a lot of misinformation about this. As you explained, it will affect few people.

Feb 16, 2013 10:49 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

The new 3.8% tax is on certain investment income. It is not a “real estate” tax despite the fact that is often characterized as so. Not everyone will be subject to the tax. Also, the capital gains exclusions of $250,000 and $500,000 for the sale of a principal residence still apply.

 

This tax will impact those who are widely considered to make substantially more than average income.

 

For complete details, seek the help of a tax professional.

Feb 16, 2013 02:05 PM
Edward Gilmartin
CRE - Boston, MA

This tax will impact those who live in expensive areas of the country...it is so arbitrary that is should be repealed.

Feb 16, 2013 10:52 PM
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Why do they make the tax odes so complicated, oh that is right then everyone would have to pay their fair share. They tax the so called rich so the peasents will think they are being fair but they give them so many loop holes.

Let there never be any doubt the rich are in congress governing the peasents and they are not making laws that take from themselves. We the people just keep working while they steal more and more.

Feb 17, 2013 09:43 AM
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

Thanks for an informative post!  

Feb 17, 2013 11:02 PM
Samantha Smith
214.422.0729 www.SamIAmHouses.com - Rowlett, TX
Sam I Am Houses, Simply Texas Real Estate

Thanks ya'll ... I hope the links in this post will be helpful to sharing this Tax information with your clients! One important thing to remember is that the 3.8% Tax will NOT be done on the HUD-1/Closing Table. It will be assessed when your Seller does their Federal Income Tax.

 

Ron ~ Thanks & I have to agree with you. Once there's a law like this, it's easier for the lawmakers to tweak it ... and 1 day, this tax might just be on all Home Sales (sigh) but we're not there yet & hopefully won't be for awhile! 

 

Edward ~ you made me chuckle ... "it 3.8% because 4% was simply too high"



Feb 19, 2013 12:30 AM
Edward Gilmartin
CRE - Boston, MA

Our government is just moving chairs around on the titanic...imagine giving amnesty to 11 million illegal aliens...they all will fall all it once on our medicaid system blowing our deficit even higher..Our government should work harder for the tax payers.

Feb 19, 2013 01:01 AM

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