Is There A 3.8% Sales Tax On Real Estate Now?
Posted by Lisa Udy on Monday, October 25th, 2010 at 2:34pm.Last week a co-worker of mine told me he heard about a new sales tax being imposed on real estate transactions. He said he heard that there was going to be a 3.8% sales tax on every real estate transaction. I was skeptical so I did a little research myself and I found something a little different. Since then, I have heard it from a number of people, and there is a lot of false information going around. After doing my own research, I was able to find an article that explained the tax, and I wanted to share it with you.
According to the FALSE information: Every real estate transaction will be taxed at 3.8% starting in 2013. Which is NOT true.
The Truth:
Quoted from: Is there a new 3.8% 'sales tax' on real estate in the Health Care Bill?
' The Tax Facts
- There is a new 3.8% tax in the healthcare bill.
- It is not a 'sales tax' on all real estate transactions.
- It is a Medicare tax.
- Many people will not have to pay this tax.
- It is going to affect so-called 'high earners.'
- It is not going affect many people.
- The tax comes into effect in 2013.
'High Earners' - Who are they?
The income requirement for so-called 'high earners' are spelled out in the new law: $250,000 for married couples filed jointly, $125,000 for couples filing separately, and $200,000 for all others. If you earn more than these benchmarks, you are a 'high earner' and therefor subject to the new 3.8% tax, but what you are taxed on helps further eliminate many people.
How is the tax calculated?
One of the emails I've seen states that on the sale of a $400,000 home, you would pay $15,200 as a real estate sales tax (3.8% x $400,000). This is incorrect. There are two incorrect assumptions by the authors of the email; a) that the Medicare tax is based off of sales price alone and b) it applies to everyone (which we know to be false based on the 'high earner' income requirement).
The incorrect assumption that the real estate sales tax (aka the Medicare tax) is calculated based on the sales price of the home makes a huge difference. Instead, the tax is calculated based on profit. As investment income, the profit is the sale price minus the initial investment. Going back to the $400,000 home mentioned earlier, let's assume you paid $350,000 for it. You profited $50,000. Based on that, yourtax would be $1,900 (3.8% x $50,000). Much better than $15,200, right?
But wait, there's one more piece of the puzzle.
Okay, so you owe $1,900, which isn't that bad in the overall scheme of things. But wait...do you owe $1,900? The answer is a resounding no. Why? Because of the capital gains threshold that is included in the language. You are only charged the 3.8% Medicare tax if your investment income passes the capital gains threshold. How much is that? The capital gains threshold is $250,000 for individuals and $500,000 for married couples filing jointly.
This means that profit over the $500,000 or $250,000 (depending on your marital status) would be taxed at the 3.8% rate (you would still need to be classified a 'high earner'). In our $400,000 example above, where you walked away with $50,000 in profit, you would not be taxed. The $50,000 is below the capital gains threshold. '
By - Matt Stigliano - San Antonio Real Estate Agent
Matt is a very knowledgeable real estate agent, and with this post, puts the false rumors to rest. Yes, there is a tax, but it's only if you make over $200,000 a year if you're single or $250,000 a year if you're married. AND, only if you make over the capital gains threshold of $250,000 on a transaction. So, yes there is a new tax, but it's not as bad as the rumors say. Thanks Matt!
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