Is there a 3.8% Real Estate Sales Tax Coming? Yes, But Mostly No

A 3.8% Sales Tax when selling a home? My client had heard about this from a friend last week.  He emailed me the other to day ask if the health care bill included a 3.8% sales tax when selling a home.  I was pretty sure this was not exactly right, but thought I should check this out and clear the air.

Apparently, it’s a common question or misconception. Courtney Cooper Jacobs had been asked the same thing by one of her clients.  She did some research and linked to Matt Stigliano’s blog, which did a great explanation of the future tax with some real world examples.

Yes, Virginia there will be a new tax but only for a “chosen” few. But no, it’s not a sales tax on real estate.  It’s a Medicare tax and only applies to certain people and homes. Most home sellers will not pay any additional tax.  Those that pay are the fortunate people who are high earners and have also made a killing on the sale of their home.   And, if there is a tax that applies,  it will only be a small percentage of the sales price.

From Matt Stigliano’s blog:

The new Medicare tax on real estate sales is actually a tax on investment income for so-called “high earners.”

With that in mind, a 3.8% Medicare tax on the sales of a $400,000 home would be $15,200, which is a lot of money to pay in tax. This is where many people’s calculations have gone astray however, as the real estate “sales tax” is not on the entire amount of the sale. Instead it is on the amount of income that exceeds the capital gains threshold ($500,000 for married couples filing jointly, $250,000 for single filers).

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, and $200,000 for everyone else. If your income is above these levels, you will be paying a new tax on investment income. If it falls below that, you will not be taxed.

This medicare tax does not go into effect until 2013.  So I hope this clears the air for you.  It’s really not as bad as may people have been lead to believe.

Posted on September 30, 2010 at 6:20 pm
The Beaupain Team | Category: Financing, For Buyers, Real Estate, Real Estate News | Tagged , , , , , ,

2 responses to “Is there a 3.8% Real Estate Sales Tax Coming? Yes, But Mostly No”

  1. Debra – Thanks for mentioning my article, one which has received more traffic than I could have ever imagined it would. Within days of writing it, it became the most viewed article and continues to attract visitors via email links, blogs like yours, and Google.

    I hope it’s helped a few people, both your clients and others, to understand some of the finer points of the article.

  2. Debra Sinick says:

    Thanks, Matt. Your post was excellent and explained the situation really well. I’m not surprised this post generated so much interest. There are so many misconceptions out there and people want to understand the reality of the situation.

    Yes, my clients were pleased to know they will not be paying any additional “tax.”

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