Will You Be Paying the Home Sales Tax Under Obama’s Health Care Law?

By Ilse Cordoni on http://www.aoausa.com/care_law.html

obamacare home sales tax 2013There is a persistent rumor that if you’re a property owner who sells real estate after January 1, 2013, “Obamacare” will force you to pay a 3.8% federal health care tax on the sale of the property.  In fact, the vast majority of American property sellers will pay NO federal health care tax on the sale of property.

Who Pays, Who Doesn’t

The health care legislation signed into law in March 2010 is massive in scope.  Its coverage provisions will cost at least $800 billion over the next decade, paid for through $500 billion in cuts elsewhere and a 3.8% tax on investment profits and non-wage income starting in 2013 – applicable to couples with adjusted gross incomes (AGI) of $250,000 (or $200,000 for individuals).  About 95% of American households make less than that and would thus be unaffected.

If you’re a married couple with an AGI in excess of $250,000, yes, you may owe this tax.  Couples who sell a qualifying personal residence can exclude the first $500,000 in profit from the tax ($250,000 for singles).  Remember, this refers to profit from a home sale, not proceeds
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So, a couple that bought a house for $100,000, lived in it for three of the last five years, then sold it for $599,000 would owe no tax, even under the health care law.  There is no similar exclusion for the sale of other investment income.

If contemplating the sale of your home or investment property in the next few years, now is a good time to consult your accountant or financial planner to see whether or not the tax may apply to you… or avoid the tax by selling in 2012. 

Ultra-High Priced S.F. is Unique

The Tax Policy Center figures that in 2013, about 0.2% of households with a cash income of $100,000 to $200,000 would pay any additional tax under this provision.  However, given the city’s high housing costs, the percentage of households owing the tax upon sale will likely be higher than the national average.  Also, the $200,000 and $250,000 thresholds are not indexed for inflation, so over time, more individuals may become subject to the tax.

The Bottom Line

If contemplating the sale of your home or investment property in the next few years, now is a good time to consult your accountant or financial planner to see whether or not the tax may apply to you.  And… if it does, whether it makes sense to avoid the tax by selling in 2012.
Of course, all bets are off as to whether all or portions of “Obamacare” will be struck down by the U.S. Supreme Court or whether other provisions of the tax code will be rewritten that may entirely change the taxation of gains of any type.  Stay tuned.

Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.

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