3.8% Tax on the Sale of Your Home Begins in January - Belmont ...

You may have already heard through an errant email or co-worker that hidden in the health care bill was a provision for adding a 3.8% sales tax on the sale of your home.

We?ve even been forwarded emails with the story contained in a newspaper article. So is there any truth to it? Well, sort of.

The much ballyhooed 3.8% tax in the health care bill which takes effect in 2013 is actually a Medicare tax on investment income?not a real estate tax per se. That alone might not make you feel any better but read on.

According to?the California Association of REALTORS FAQ section?on their web page there are very limited circumstances in which this tax would be levied.

As it would apply to real estate, first your income would need to be over $200,000 a year ($250,000 for married couples filing jointly).

If you?re selling your principle residence, the first $250,000 of gain for single tax filers and $500,000 for those who file jointly would be exempt from taxation?as it currently stands for capital gain taxation.

The 3.8% tax would apply only to the portion which might exceed this threshold. It?s also important to note that this tax is on the gain, not the sale price. So if you were to sell a home you and your spouse bought for $500,000 several years later (you need to have lived in the home two of the past five years) for $800,000, you would have a gain of $300,000. This is of course is further diminished by any capital improvements you made to the property and selling costs but to keep it simple we?ll use the higher figure of $300,000. Based on this you would still owe no capital gain tax nor would you owe the new Medicare Tax even if your income was over the $250,000 threshold because your gain was only $300,000?less than the allowable first $500,000 which is forgiven.

So several things need to happen before you would be subject to the tax:

• Your income must exceed the thresholds mentioned above.
• Your gain on the sale of your home must exceed the allowable forgiven limits.

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Of course we are not tax professionals and this information should not be relied upon when making tax related decisions. Instead, we recommend that you contact your C.P.A. or if you do not have one, call Fredrick Thompson C.P.A. at (650) 343-5965.

As far as we can tell the viral nature of this email succeeded in part because it resonates with what many readers feared about the health care bill?that it would be chalk full of special interest groups? hidden agendas. Further exacerbating this was that many email authors added their own spin by including miscalculated and outrageous examples of how the tax might be applied?their agenda being further picked up by those who wish to freighted people into voting the way they want by saying, as the email we received said,??People have the right to know the truth because an election is?coming in November!?

We couldn?t agree more, and hope this explanation is closer to that truth.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.?

Drew & Christine Morgan

REALTORS | Notary Public

DRE# 01124318 & 01174047

Source: http://belmont-ca.patch.com/blog_posts/38-tax-on-the-sale-of-your-home-begins-in-january

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