Saturday, August 18, 2012

ObamaCare's New Home Seller Tax

"So when I sell my home, do I have to pay a new tax?" This is the question on every home sellers' mind since news of the Affordable Health Care Act of 2010 broke. 

According to the California Association of Realtors, beginning January 1, 2013, a new tax sometimes referred to as the "Medicare Tax" will take effect.  Part of the Affordable Health Care Act of 2010, includes this new 3.8% tax on sellers that have an adjusted gross income of more than $200,000 (for a single person), $250,000 (for couples filing jointly), and $125,000 (couples filing separately). 

Because this is a complicated tax law and will impact investor's differently, for the purpose of this blog, I will only be addressing home owners selling their principal residence with gains greater than the normal sellers' tax exemptions ($500,000 for married couples and $250,000 for individuals).   To help you understand, I am including an example from The 3.8% Tax Real Estate Scenarios & Examples Brochure, written by the California Association of Realtors (CAR): 

John and Mary sold their principal residence and realized a gain of $525,000. They have $325,000 Adjusted Gross Income (before adding taxable gain)."

The tax applies as follows:
     AGI Before Taxable Gain $325,000

     Gain on Sale of Residence $525,000

     Taxable Gain (Added to AGI) $25,000 ($525,000 – $500,000)

     New AGI $350,000 ($325,000 + $25,000 taxable gain)

     Excess of AGI over $250,000 $100,000 ($350,000 – $250,000)

     Lesser Amount (Taxable) $25,000 (Taxable gain)

     Tax Due $950 ($25,000 x 0.038)

NOTE:  If John and Mary had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax would depend on the other components of their $325,000 AGI.

With this new tax, I recommend sellers talk to their accountants to verify their liabilities, because each home seller has different circumstances that may impact their tax rates when selling their home.  

Written by Virginia Hall
                ABR, CRS, e-Pro, GRI, SFR
                Coldwell Banker Residential Brokerage
                DRE Lic 01409760
                        www.VirginiaHall.com
                Virginia@VirginiaHall.com
                Direct (619)258-8585

               

     

5 comments:

  1. A great post with out doubt.i did get lots of good points from here. thanks for sharing.

    Jeffrey T. Angley, P.C.

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    Replies
    1. Thanks. Again this is just for the homeowner. Another blog coming on the how the new law would apply to the investor.

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  2. There are many types of different properties which have different taxes and interests, many people don't know about this thing, so it is better for them to take help from agents.

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    Replies
    1. While you may think that a Realtor is the best person to tell you about this tax law, actually your accountant is the best person to consult about your individual situation and how this complicated tax law applies to you specifically.

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