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It’s easy to understand the immediate hype that came about once the new Healthcare Reform Bill of two years ago resulted in a new real estate tax to be imposed beginning January of 2013. But a lot of the hype has been misguided. In fact, today I’d like to clarify exactly how and when the tax applies.
New Real Estate Tax Applies To
Transactions With Capital Gains
Keeping in line with capital
gains tax laws, single persons are exempt from taxes on up to $250,000 of
capital gains and married couples exempt up to $500,000 of capital gains.
In other words, considering a
home that was bought for $300,000 and then sold for $400,000 – there is a no
capital gains tax for either a single person or married couple since the profit
is only $100,000 on this property. Assuming you fall into the category of
applicable taxpayers, you only pay taxes if you sold it for over $500,000 of your purchase price.
Consider a home owned by a married couple that sold for $900,000. The $600,000
profit will result in a capital gains tax on $100,000 of the profit – the
amount that exceeds the $500,000 limit. In this scenario if it were an
unmarried seller there would be a capital gains tax on $350,000 of the $600,000
profit.
Tax Applicable Only For Higher
Income Individuals and Couples
Many people have been under
the impression that all home sales will be taxed – for example according to
common misinformation the sale of a $300,000 home would generate ten to twelve
thousand dollars in tax. The tax is not on your entire sales price.
The truth is the only scenario that would amount to the additional 3.8% tax is
when a seller will be paying a capital gains tax and they fall within the income guidelines of the new law.
Looking again at our example
above, assuming the home sold for $900,000 and the seller is a married couple,
on a $600k profit the additional tax is $3800 – not $27,000 as the current
rumor mill might calculate.
