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Tax on Home Sales

machine gun moranmachine gun moran Member Posts: 5,198
edited June 2012 in General Discussion
If anyone is planning on selling their house after January 1, 2013, they should know that they will be required to cough up 3.8% of the selling price, in sales tax. They have an alternative, which is to charge the buyer an additional 3.8% of the purchase price after the deal is made (or to somehow split the tax between them).

The Realtor's associations are raising a lot of Cain about this because they believe it will put a severe crimp in sales.

This tax does not take effect until after the Presidential election (ahem). It is part of Obama's health care bill. You know, the one Pelosi said that Congress had to pass, 'so that they could read it'...

Comments

  • nutfinnnutfinn Member Posts: 12,804 ✭✭✭
    edited November -1
    American voters voted Hussein in, so ... [:D]
  • andrewsw16andrewsw16 Member Posts: 10,728 ✭✭✭
    edited November -1
    quote:Originally posted by machine gun moran
    If anyone is planning on selling their house after January 1, 2013, they should know that they will be required to cough up 3.8% of the selling price, in sales tax. They have an alternative, which is to charge the buyer an additional 3.8% of the purchase price after the deal is made (or to somehow split the tax between them).

    The Realtor's associations are raising a lot of Cain about this because they believe it will put a severe crimp in sales.

    This tax does not take effect until after the Presidential election (ahem). It is part of Obama's health care bill. You know, the one Pelosi said that Congress had to pass, 'so that they could read it'...


    Are you sure about this? I seem to recall this email got passed around last year and was determined to be largely incorrect. Just wondering if you "fact checked" this.
  • grumpygygrumpygy Member Posts: 53,466
    edited November -1
    What it comes down to is if you sell a home visit a tax lawyer 1st.

    quote:First, it is not a sales tax, nor does it impose any transfer or recordation tax. It is called a "Medicare" tax because the moneys received will be allocated to the Medicare Trust Fund, which is part of the Social Security system.

    Next, if your individual income (technically called "adjusted gross income") is less than $200,000, you are home free. The income thresholds are clearly spelled out in the law. If you are married and file a joint tax return with your spouse, the law will apply only if your income is more than $250,000. If you and your spouse opt to file a separate tax return, the threshold is reduced to $125,000. For all other taxpayers, you have to earn more than $200,000 in order to be under the new law.

    The up-to-$500,000 exclusion of gain from a home sale for married couples filing a joint tax return (or up to $250,000 for single taxpayers) has not been repealed; also, the right to deduct mortgage interest and real estate tax payment has not been eliminated.

    How is the tax calculated? It is a complex formula that could be called "the accountant's protection act." As a taxpayer, you (or your financial adviser) must determine which is less: the gain you have made on the sale of your house or the amount that your income exceeds the appropriate threshold.

    Complicated? Yes. Let's look at these examples. Your adjusted gross income is $150,000. You sell your house and made a profit of $400,000. There is no change in the way you determine your gain: You take your purchase price, add any major improvements you have made over the years, and subtract that number from the net sales price.

    Based on this formula, you and your spouse have owned and lived in the property for at least two out of the five years before it was sold. Accordingly, you are eligible to exclude all of your profit; you are not subject to the new 3.8 percent tax. Keep the money and enjoy.

    Change the example so that your adjusted gross income is $300,000. Since you are eligible to take the profit exclusion of up-to-$500,000, once again you do not have to pay the Medicare tax; your entire gain is excluded, and thus there is no profit to tax.

    But let's assume you strike it rich and have made a profit of $600,000. Your income is $300,000. You can exclude only $500,000 under current law, so you will have to pay capital gains tax on the remaining balance. The rate currently is 15 percent, so you will owe Uncle Sam $15,000 ($100,000 multiplied by 15 percent).

    But since your income is over the threshold, you now also have to pay the 3.8 percent tax. But on what amount?

    As indicated earlier, the tax is based on lesser of your profit or the difference between the threshold and your income. Your profit is $100,000. The difference between your income and the threshold is $50,000 ($300,000 minus $250,000). In our example, the lower number is $50,000, and you will have to pay an additional $1,900 to the Internal Revenue Service (3.8 percent multiplied by $50,000).

    According to statistics provided by the National Association of Realtors, in March of this year, for example, half of all existing homes sold for $170,700 or less. Clearly, none of these homes could make a profit of even $250,000, so if you qualify for the exclusion-of-gain requirements you will not be impacted by this new law.

    This new law has yet to be analyzed or interpreted. We have more than two years before it takes effect. However, since the law applies to all forms of real estate, including vacation homes, you should consider consulting with your tax and financial advisers as to your exposure.

    You will, of course, have to wait until we all have a better understanding how it will work. In the meantime, however, don't believe the rumors.
  • JnRockwallJnRockwall Member Posts: 16,350 ✭✭✭
    edited November -1
    sounds like crap to me
  • andrewsw16andrewsw16 Member Posts: 10,728 ✭✭✭
    edited November -1
    I knew I had seen something about this. It is PARTIALLY right. But the statement that you will have to cough up 3.8% of the selling price is incorrect.

    There will be a 3.8% tax on profits over $500,000. Personally, I've never made a profit that big. [:D] Sure wish I had.

    http://www.snopes.com/politics/taxes/realestate.asp
  • machine gun moranmachine gun moran Member Posts: 5,198
    edited November -1
    It was in an e-mail that gave this as a reference:

    http://ww.gop.gov/blog/10/04/08/obamacare
  • andrewsw16andrewsw16 Member Posts: 10,728 ✭✭✭
    edited November -1
    Both parties will be publishing a lot of half truths about their opponents this year. [:D]
  • bpostbpost Member Posts: 32,664 ✭✭✭✭
    edited November -1
    Tax everybody everything until we are broke as a nation. Oh, uh never mind.
  • PanzerSlayer2PanzerSlayer2 Member Posts: 1,798 ✭✭✭✭✭
    edited November -1
    It really doesn't matter whether or not some sales are required to pay this or how many exclusions there should be. No one should have to pay it on top of capital gains.
  • River RatRiver Rat Member Posts: 9,022
    edited November -1
    Once again, we are punishing people for being successful. Fortunately, with the present real estate market and economy few are likely to make that kind of profit on a home sale. It's the bigger homes that aren't selling, and have dropped in price.
  • Marc1301Marc1301 Member Posts: 31,897 ✭✭✭
    edited November -1
    quote:Originally posted by PanzerSlayer2
    It really doesn't matter whether or not some sales are required to pay this or how many exclusions there should be. No one should have to pay it on top of capital gains.

    +1000
    "Beam me up Scotty, there's no intelligent life down here." - William Shatner
  • bigoutsidebigoutside Member Posts: 19,443
    edited November -1
    quote:Originally posted by PanzerSlayer2
    It really doesn't matter whether or not some sales are required to pay this or how many exclusions there should be. No one should have to pay it on top of capital gains.


    It wouldn't be on top of capital gains.

    For the vast majority of home owners, capital gains on the sale of a home has been gone for many moons.
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