Many of us have been alarmed about the fact of this 3.8% sales tax. Many of us has said it is on all sales and it is on the purchase price. That is not the case. If the Health Care law stands up than this is the real truth courtesy of RE/MAX Broker Newsletter I received this morning. Still concerning, but not nearly as much as what many people on Active Rain have been spreading.
Have you heard of the new "real-estate sales tax?"
According to a CPA, it isn't effective until 2013, which means the IRS is a long way from writing the rules. Here's the deal, it's not a real-estate tax in the sense that it will apply to all sales; rather, it's a highly targeted 3.8% tax enacted as part of the health-care reform legislation recently signed into law. The tax will apply to individuals with adjusted gross incomes (AGI) over $200K and couples filing jointly with more than $250K AGI. The Medi-care tax, so named because the proceeds are to be dedicated to the Medicare Trust Fund, will be on interest dividends, rents less expenses, and capital gains less capital losses. The thing to remember is that the tax is based on whichever is less, the gain you made on the sale of the house or the amount your income exceeds the AGI threshold.
Courtesy of the CPA, here are some simplified-scenarios:
- A couple filing jointly with AGI of $325K realize a gain of $525K when they sell their principal residence. If the gain is less than the $500K exclusion on the capital gain ($250K for single taxpayers), none of gain would be subject to the Medicare tax. Since the taxable gain is $25K above the $500K exclusion, it's added to couples AGI, bringing it to $350K. While that's $100K above the $250K AGI limit for couples filing jointly, the $25K taxable gain on the sale of the property is the lesser amount in this case, so the extra Medicare tax due to Uncle Sam in this case would be $950, or 3.8% of $25K.
- A part-time landlord earns $85K from his day job plus $130K in gross rents from several condo apartments he owns. He also has $110K in expenses related to his income property, leaving him with $20K in net profits from his rental business. Even though his adjusted gross income is $15K above the $200K ceiling for individual taxpayers, before expenses, he will owe Uncle Sam nothing because investment income is counted as net, not gross, receipts.
- You and your spouse paid $275K for a vacation home you've never rented and sell it for $335K in a year when your earned income from all other sources is $225K. So, your AGI is $285K, which is the sum of your $60K gain on the sale of the second home and your other in-come. Clear as mud? It's complicated and hard to predict how it will affect every seller, so contact your CPA.
As I mentioned before it is complicated and I would certainly consult your CPA to see how it effects you and your sellers.
David Serle
Vice President/Managing Broker
RE/MAX Services
561-912-3500 Office
561-912-3502 Direct
561-756-3104 Mobile
