Q: Does the new health care law impose a 3.8 percent tax on profits from selling your home?
A: No, with very few exceptions. The first $250,000 in profit from the sale of a personal residence won’t be taxed, or the first $500,000 in the case of a married couple. The tax falls on relatively few — those with high incomes from other sources.
FULL ANSWER
Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made. This tax is aimed at so-called "high earners" — if you do not fall into that category you will not pay any extra taxes upon the sale of your home.
For example, let’s assume that a couple with an income of $325,000 bought a house in 2004 for $300,000 and resold it in 2013 for $850,000, thus producing a $550,000 profit.
After excluding $500,000 from their gain of the sale, they are left with $50,000 investment income. Since their AGI is $75,000 over the married threshold amount the lesser amount of $50,000 would be subject to taxation – at 3.8 percent they would owe $1,900.
The referenced tax is therefore not a tax on all real estate sales; it is an investment income tax which could result in a very small percentage of home sellers paying additional taxes on home sales profits over a designated threshold amount. In short, if you’re a "high earner" and you sell your home at a substantial profit, you might be required to pay an additional 3.8% tax. However, given that only about 3% of U.S. households have incomes that exceed the specified income threshold amount, the existing home sale capital gains exclusion on a principal residence ($250,000 for individuals, $500,000 for couples) still stands, and the national median existing-home price in January 2012 was only $154,700.
The 3.8 percent tax will take effect beginning January 1, 2013.
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Yes, that is correct. The medicare tax bill will only be imposed on individuals with an income above $200, 000 and couples with a joint income of more than $250, 000. And from that point, it excludes the 97% of all households in the US. Also, the tax will not be assessed in every house sale, but only on real estate transactions that will profit on a specified amount.