I don’t typically like to discuss politics with clients or on my blog because everyone is entitled to their own opinion and I respect that, but with that said, sometimes politics find their way into affecting my real estate business and thus I have to share.
Today I received a forward email from a loan officer I had a transaction with years ago. The email was from a conservative promoting the GOP.gov website and was ranting about a new tax on housing that had been snuck into the ObamaCare health bill. But what really got my attention was that the email stated that under the new ObamaCare, all real estate transactions will be subject to a 3.8% Sales Tax. It stated that if you sell a $400,000 home, there will be a $15,200 tax.
I thought to myself, how could that possibly be, surely I would have heard about this some time ago? So, I did a little more digging to try to find a non-partisan news source to get more info on this and I ran across this article on Snopes.com. The Snopes article states that much of this is misinformation and that the tax is only if the home is sold over the capital gains threshold, then you would be required to pay the extra 3.8% tax on the sale. According to Snopes, the email I received has apparently been viral in nature, you may have seen it yourself and several news sources have misspoken, quoting the email and the GOP.gov website, which both had incorrect information about this bill.
I also found this article explaining the bill a bit further, stating:
The bill would impose essentially a capital gains taxes on some home sales made by a limited number of taxpayers. (The health care law contains a new 3.8 percent tax on “unearned income” for high-income taxpayers. Unearned income includes capital gains.) To be hit by the 3.8 percent capital gains tax, you first have to be a married couple making more than $250,000 in adjusted gross income or $200,000 if you are single. The capital gain on the home sale must also exceed $500,000 if this is a primary home and you are a married couple ($250,000 for singles). So for example, even if you and your spouse make $300,000 in wages and you bought a home that you lived in for a while for $600,000 that you now sell it for $1 million, your capital gains tax on that home sale would be zero. Even if the home sold for $1.2 million, thereby resulting in a capital gain of $600,000, only $100,000 of that capital gain would subject to the new tax (because of the $500,000 exclusion).
The article goes on to say that “Over time, however, if the health care reform and the tax code were never changed, more and more home sales would be subject to this tax. That’s because the $200,000 and $250,000 income thresholds in the health care reform bill were not indexed for inflation leading more and more people to qualify for having to pay the 3.8 percent tax on their investment income (including some home sales). Furthermore, the $500,000/$250,000 primary home sale exclusion amounts are not indexed for inflation, meaning that over the long-run as home prices grow with inflation, more primary home sales would be subject to capital gains taxes.”
No one likes new taxes, in any case. If you are expecting to have a large profit from the sale of a home that you would close after 2013, it may be worth selling your home now to avoid the possibility of this tax. The email mentioned that the National Association of REALTORS is all over this and working to get it repealed, before it takes effect. Fingers crossed.
So you weren’t aware this was in the Obamacare bill? Guess what, you aren’t alone. There are more than a few members of Congress that aren’t aware of it either when they signed! Don’t we elect these people to read what they are signing? We need to hold our elected officials to a higher standard than this.