It's not quite up there with alligators living in sewers, but an urban legend is forming around a provision of the Affordable Care Act recently upheld by the Supreme Court.
The health-care legislation touted by President Barack Obama includes a provision that could result in a partial capital-gain tax on homes sold by a small number of taxpayers. But e-mail blasts claiming all transactions would be subject to a housing sales tax are inaccurate, experts say.
At issue is the new 3.8 percent tax on the investment earnings of upper-income households. This provision, designed to help fund Medicare, will take effect in January unless Republicans in Congress can follow through on vows to scuttle it.
"That provision provides the rumors with a kernel of truth," wrote Jack Hagel and Alistair Nevius for the Journal of Accountancy. "A very small number of taxpayers will pay a surtax on gain from the sale of a principal residence."
One e-mail message making the rounds discusses the Medicare levy as "a ploy to steal billions" from unsuspecting homeowners through a sales tax on housing.
"Did you know that if you sell your house after 2012, you will pay a 3.8 percent tax on it?" the message states, and then gives examples of a $3,800 tax on a $100,000 sale and a $15,200 tax on a $400,000 transaction.
"Under the new health-care bill, all real-estate transactions will be subject to a 3.8 percent sales tax," the message states, erroneously. "This bill is set to screw the retiring generation, who often downsize their homes."
The website of the National Association of Realtors points out that the 3.8 percent surcharge isn't a sales tax. Further, the group notes that the new law doesn't eliminate the ability of single homeowners to exclude up to $250,000 in gains on a principal residence, or $500,000 in gains for married couples filing jointly.
"Thus, only that portion of a gain above those thresholds is included in (adjusted gross income) and could be subject to the tax," reads an NAR statement.
(To qualify for the $250,000/$500,000 exclusion, you also must have owned the home for at least two of the five years preceding the sale date, and you need to have lived in it as your main residence for at least two of those five years.)
If you think you might have a taxable housing gain, you should first determine whether you're subject to the 3.8 percent tax. It will apply only to a small number of taxpayers with modified adjusted gross income above $200,000 (singles) or $250,000 for joint filers. Only 2.4 percent of the 2.7 million federal tax returns filed by Arizonans in 2010 reported AGI of $200,000 or more, according to the Internal Revenue Service.
Next, calculate the size of any taxable housing capital gain. Even people with incomes above $200,000/$250,000 can exclude much, if not all, of their profit. As noted above, singles can exclude the first $250,000 in capital gain on the sale of a primary residence, and joint filers can subtract $500,000. When figuring your gain, exclude what you paid for the property and what you spent on improvements such as adding a bathroom. Together, the original purchase cost and later reinvestments are known as a home's "basis."
"So, a $100,000 gain on the sale of a principal residence would not be subject to the tax, and even a $400,000 gain on the sale of a principal residence would not be subject to tax for joint filers," said Mark Luscombe, principal analyst at tax-researcher CCH Inc.
Finally, the 3.8 percent tax, if applicable, is levied against the smaller of two numbers. The first number is your gain or net investment income from the home sale, as calculated above. The second is the amount by which your adjusted gross income exceeds $200,000 (singles) or $250,000 (married couples filing jointly).
Hagel and Nevius provide an example: Suppose you and your spouse bought a home years ago for $350,000, and then you sell it for $900,000. After excluding $500,000 from the $550,000 gain, you're left with $50,000 in investment income/gain.
Now suppose you and your spouse have adjusted gross income of $325,000, including the $50,000 from the home sale. Your AGI of $325,000 is $75,000 above the $250,000 income threshold for joint filers, but the tax wouldn't apply on this $75,000. Rather, you would face a tax on the smaller number -- the $50,000 net investment income/gain.
In short, $50,000 would be subject to the 3.8 percent surtax, and you would owe $1,900 from the home sale. That's a far cry from paying tax on the full $900,000 proceeds.
It's worth noting that some homesellers could owe regular capital-gain tax in addition to the 3.8 percent surtax. Also, the gain on the sale of a second home wouldn't qualify for the $250,000/$500,000 exclusion and thus would be fully included as net investment income, said Luscombe.
Gains on rental real estate might not qualify for exclusion, either. "That capital gain would generally be subject to the 3.8 percent tax on net investment income, unless the gain is derived from property considered to be held in an active trade or business," Luscombe said. "Therefore, real-estate professionals would not be subject to the tax, but real-estate investors would be."
In short, this provision is confusing and subject to misinterpretation, but most homesellers won't be affected by it.
Reach the reporter at firstname.lastname@example.org or 602-444-8616.
Are you in line for the tax?
The Affordable Care Act contains a provision that could impose a 3.8 percent tax on part of the gain from the sale of a primary residence. Here's how to tell:
Figure your adjusted gross income. If your AGI, including any taxable gain from the home sale, exceeds $200,000 (singles) or $250,000 (joint filers), then the 3.8 percent tax might apply.
Determine the size of your taxable gain. The tax applies only on part of the gain, not overall proceeds, from a home sale. To figure it, subtract your original purchase price and the cost of improvements made over the years (collectively known as a home's "basis") from the sale proceeds. Then subtract the $250,000 exclusion amount for singles or $500,000 for married couples. Most people selling a home won't have a taxable gain.
Compare the resulting gain with your income. The tax, if any, applies on the smaller of two numbers. The first is your taxable gain from the home sale (after the $250,000/$500,000 exclusion). The second is the amount of your adjusted gross income that exceeds $200,000 (singles) or $250,000 (joint filers). Most people won't owe the 3.8 percent tax on either figure.
by Russ Wiles - Aug. 10, 2012 The Republic | azcentral.com
New tax on home sales is overblown rumor
Reuters: Business News
National Commercial Real Estate News From CoStar Group
Latest stock market news from Wall Street - CNNMoney.com
- ► 2016 (145)
- ► 2015 (146)
- ► 2014 (102)
- ► 2013 (395)
- Last days of the Borgata
- LifeLock reveals finances pre-IPO
- Home prices rose in July in 20 major US cities
- Radar Logic: Home Prices Hit Peak in July, Distres...
- 34,000 in Ariz. get mortgage aid
- Phoenix-based Vestar buys Calif. retail center for...
- Phoenix-area rental homes a red-hot commodity
- Home-related sales through the roof
- New US home sales edged down 0.3% in August
- Attorney General sets 3-year foreclosure plan for ...
- Top 10 things to know about Social Security
- Understanding Social Security benefits
- Maricopa County homeowners likely to see property-...
- Reagor: Building of homes slows a bit
- At 40, McCormick Ranch still desirable place to li...
- Fountain Hills mulls giving new life to avenue
- Peoria entertainment/hotel plan closer to reality
- Residential lot coverage debated in Arcadia
- Arizonans may not feel closure of local banks
- Proposed Scottsdale condo plan gains height, densi...
- Luxury retirement facility's sales rise
- Audit: Maricopa County housing-agency woes continu...
- Foreclosure starts fell on annual basis in August ...
- Housing prices up in most NE Valley communities
- Housing key part of SkySong's 'secret sauce'
- Valley in top 10 in US for foreign investors
- New tax on home sales is overblown rumor
- Home construction on uptick in Scottsdale
- Building set for approval - USATODAY.com
- Furnishings firm takes over ex-nightclub site
- The market: Views from the trenches
- City closer to Waterfront apartment-plan OK
- Scottsdale council approves permits for downtown b...
- Metro Phoenix a seller's (and landlord's) market
- Scottsdale home prices up 9.26 percent over a year...
- Valley bankruptcies keep plummeting
- IRS pays Swiss ex-banker, whistleblower $104 milli...
- Baby Boomers have many options for retirement plan...
- Proposed condo plan gains height, density
- Cottonwoods considers adding assisted living
- Scottsdale council approves contentious Echo at Wi...
- Phoenix-area home-price dip called a 'natural reac...
- City Planning Commission draws criticism
- US Home Prices Rise in July by Most in 6 Years - D...
- 2 large Phoenix warehouses being built
- City expands affordable housing - USATODAY.com
- Entertainment hub progresses - USATODAY.com
- City hopes Chandler site will be revitalized - USA...
- PV commission member resigns over resort redevelop...
- Top 5 lenders: $500M spent in Ariz. - USATODAY.com...
- 6,900 Scottsdale apartments in pipeline
- Home prices notch first 12-month gain since 2010 -...
- Advice for Arizonans on brink of foreclosure
- New-home sales rise to match 2-year high - CBS New...
- Beach-club complex votes on permits, licenses are ...
- US home sales rose 2.3 percent, sign of recovery
- Toll Brothers Posts Strong Growth - WSJ.com
- A challenge to finish preserve - USATODAY.com
- Valley agent did well by focusing on SHORT SALES -...
- New Mountain Shadows resort plan consolidates buil...
- ARMLS buys researcher
- Mesa senior-living complex will be based on Tempe ...
- Home prices up in 5 areas - USATODAY.com
- Newest numbers don't cast 'shadow'
- Run-up in home prices slows - USATODAY.com
- Fannie Mae posts $2.2B net gain for Q2 - Yahoo! Fi...
- Land purchase for theater expected to finalized so...
- ASU's SkySong will add residential space
- Reagor: New-home market projections promising
- 6 Phoenix-area apartment communities sold
- Fannie and Freddie principal cuts barred - USATODA...
- Phoenix expedites building process
- Plan for luxury homes at resort stirs controversy
- Mystery bidder gets 275 homes - USATODAY.com
- Meritage earnings rise - USATODAY.com
- Mesa minister gets maximum sentence in fraud
- Split up banks, says builder of Citigroup - USATOD...
- New home sales fall to 5-month low in June – USATO...
- GOP rips Geithner about LIBOR - USATODAY.com
- Historic homes at risk after they're foreclosed
- 100 more lots sold in project - USATODAY.com
- 4333 Building plan still viable, extension sought
- Census estimates: Phoenix remains sixth-largest ci...
- SIGNS OF HEALTH - USATODAY.com
- Subdivision is proposed - USATODAY.com
- Reagor: Home-listing group game for some fun
- After 6 years, Scottsdale is settling state-land c...
- Foreclosure Crisis Hits Older Americans Hard - US ...
- Government program to help avoid foreclosure
- Property-tax bills may rise in Paradise Valley sch...
- Construction, housing sectors face challenges
- ▼ September (91)
- ► 2011 (704)