National 3.8% Real Estate Sales Tax?
You may have heard that the recent health care bill contains a 3.8% real estate “transfer tax” or “sales tax” on all home sales beginning January 1, 2013. The implication of a broad-sweeping tax on all real estate sales in misleading and inaccurate. The health bill did include a provision that imposes a new 3.8 percent Medicare tax for some high-income households that have “net investment income.” This mean households with Adjusted Gross Income 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. However, the current home sale capital gains exclusion which allows gains of $250,000 for individuals and $500,000 for married couples still applies. In the event the sale of a primary residence exceeds these gains, the new Medicare tax would only apply to the gain realized in excess of the $250,000 or $500,000 which also pushes the Adjusted Gross Income over the $200,000 or $250,000 limits.
For more information on this tax provision and examples of how it is calculated on both real estate and other investment income check out NAR’s “The 3.8% Tax Real Estate Scenarios & Examples”. If you are concerned about potential tax consequences of the Medicare bill we always recommend that you contact your tax professional.
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