No 4.0% “Sales Tax” on Home Sales in New Health Care Bill

by Sage Dillon on May 5, 2010

Rumor in Spray Paint

Photo courtesy of Flickr user Steady Decline

Remember when NAR busted the energy bill rumor about retrofits for existing homes? Now there’s a new email making the rounds about a real estate sales tax in the new health care bill. Turns out, this one is false too.

Get the facts:

“Contrary to reports and newspaper articles circulating widely on the Internet, there is not a 4.0% ‘sales tax’ or ‘transfer tax’ on the sale of a home included in the recently signed health care reform bill. The analysis underlying these reports is incorrect and fails to take into account the interplay of the bill’s provisions with already existing real estate tax laws that remain unchanged.

What was included in the health bill is a provision that imposes a new 3.8% Medicare tax for some high income households that have ‘net investment income.’ Any revenue collected by the tax is dedicated to the Medicare hospital insurance program. This new tax will only apply to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or more than $250,000 for married couples. Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.

In the case of the sale of a principal residence, the existing $250,000/$500,000 exclusion from capital gains on the sale of a principal residence remains unchanged. Consequently, even when the AGI limits are met, the new tax would not be applied to all capital gains that result from the sale of a home. Rather, it would only apply to any home sale gain realized in excess of the $250K/$500K existing primary home exclusion that pushes the filer’s AGI over the $200K/$250K adjusted gross income limit.

The new Medicare tax will not take effect until January 1, 2013.”

In case you’re curious, Snopes covered this one too. If you get an email and you’re not sure about the facts, do your friends a favor and check it out on Snopes before hitting forward.

Have other health care-related questions? NAR has put together a page on the new health reform law.

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May 5, 2010 at 4:05 pm

{ 4 comments… read them below or add one }

S. Paulow June 16, 2010 at 9:22 am

Interesting, I just got an email from someone about this today. I hadn’t had time to check it on Snoops yet. Thanks for clearing things up. I am going to share this with the source.

Sage Dillon December 1, 2010 at 2:52 pm

NAR has put together an 11-page document titled ” The 3.8% Tax: Real Estate Scenarios & Examples,” which addresses the issue more fully: http://bit.ly/fO2EDZ

Thanks to Phil Sexton for sharing the link!

Sage Dillon January 28, 2011 at 3:28 pm

There’s also a video from NAR you may want to check out:
http://bcove.me/kq2i72p4

bookkeeping May 21, 2014 at 12:21 pm

In general, the line between the services provided by tax attorneys and CPAs can be blurry.
In getting started, note that tax return preparation requires you
to compile business accounting data. The Schedule 8 form calculates tax depreciation which can then be
recognized as a tax deductible expense for the assets of an incorporated business.

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