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Friday, August 31, 2012

New Real Estate Property Sales Tax Implemented Under The Affordable Care Act


Some folks may be scared into selling their homes this year. These folks think that if they sell their home this year, they will avoid having to pay a new 3.8% sales taxes on Real Property that will be implemented on January 1, 2013 as part of the Affordable Care Act.  They think that if they sell their home in 2013 they will have to pay the sales tax on all the proceeds of the sale.
The Affordable Care Act does, indeed, implement a new sales tax on Real Property however, it is limited. First, the tax is limited to those whose incomes are over $200,000 per year ($250,000 for married couples filing jointly). Second, the tax is limited to only the proceeds for a primary residence over the current $250,000 income exclusion ($500,000 for married couples). Third, the tax is limited again to the lesser of the adjusted gross income (AGI) over $200,000 (or $250,000) or the net investment income.
What this means is that very few people, some say less than 2% of taxpayers, will be subject to this new real estate proceeds tax. Some examples are:
  • A single executive making $240,000 a year sells her $500,000 beach home for a $100,000 profit. Her real estate tax on the sale of that beach home would amount to $3,800, in addition to the capital gains she would have paid anyway.  The real estate tax applies to the entire investment income as the beach home is not her primary residence. 
  • A married couple filing jointly have a combined income of $185,000 a year sell their primary residence for a $575,000 profit. After the married exclusion of $500,000 they have a net gain of $75,000. The net gain makes their AGI $260,000, which is over the $250,000 threshold for computation of the tax. The couple would pay tax on the $10,000 over the $250,000 threshold ($260,000-$250,000) which amounts to a total real estate tax of $ 380. The real estate tax is based on $10,000, as this is the lesser of the AGI over $250,000 (or the net investment income ($75,000).


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