By now you have probably heard, or received mulitple emails, about a real estate sales tax on the sale of all primary homes beginning January 01, 2013. This new sales tax is tied to the new health care bill. I've received several emails with the scary headline, “Real Estate Sales Tax.” The first sentence said it all: “Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax?”
It went on to say, “If you sell your $400,000 home, there will be a $15,200 tax.”


My client wanted to
know whether he
should sell his home
now instead of waiting
until 2013 when this alleged sales
tax takes effect.
I was happy to inform my client
that the email was a complete
distortion based on a partial truth.
The truth, as you can read more
fully on snopes.com — a terrific
resource for verifying the truth of
any hard-to-believe email you receive,
political or otherwise — is
that the Medicare tax, which is
currently applied only to “earned”
income (wages) will be applied to
“unearned” income (investments)
starting in 2013. However, to say
that it will apply to the
total sales price of
every real estate
transaction is an outright
lie.
First of all, the tax
will only apply to investment
income —
profit — that exceeds
$250,000. In the case
of selling your primary
residence, the first
$500,000 of profit (on
a joint return) is exempted
anyway, so even if you
bought that $400,000 home for
one dollar, you wouldn’t be taxed
under current capital gains rules,
much less for that additional 3.8%
Medicare tax starting in 2013.
Investment properties are subject
to capital gains tax, but that
can be deferred through a 1031
exchange. Even so, if you sell an
investment property for $400,000,
how much of that amount is profit?
To say that the tax applies to the
whole sales price is a total distortion
— an intentional lie being
circulated for purely partisan purposes.
Because the tax only kicks in
when your investment income
exceeds a very high threshold,
only the ultra–rich will be touched
by it. The administration is actually
doing what it promised — to
raise taxes only on those earning
over $250,000 a year. The email
which my client received was
designed to fool the mass of voters
into thinking their taxes are
being raised when they’re not.