I have been getting a lot of calls and emails recently expressing great concern about a 3.8% tax on the sale of homes beginning in. January of 2013. Everyone wants to know if this is fact or fiction!    If this were indeed a fact, a seller would pay $3800 on every $100,000 from the sale of their home in taxes! The truth is that the 2013 changes will affect only a small percentage of sellers on some investment income. The new tax will not apply to the vast majority of the population.

The new tax was passed by Congress last year, with the intent of generating an estimated $210 billion to help fund President Obama's health care and Medicare plans.

"The health care plan could be repealed or changed in some way.

Only those taxpayers with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to the new tax. And even for those who have high incomes, the tax still won't apply to the first $250,000 on profits from the sale of a personal residence -- or to the first $500,000 in the case of a married couple selling their home.

The entire exemption on the sale of a primary residence remains intact and can be claimed every two years.

Gain is a net number. It is not the simply the difference between the original purchase price and the eventual sales price. Homeowners can subtract real estate commissions, excise tax, and capital improvements before arriving at a net figure for capital gains purposes.

According to the National Association of REALTORS®, the median home price for the past 12 months was $193,200 in the West, $136,600 in the South, $126,300 in the Midwest and $236,500 in the Northeast.

"What we know for sure is that the long-term capital gains rate will remain at 15 percent for 2011 and 2012.

"As of right now, higher-income people with second homes who are considering selling would be better off selling before 2013 because there's no exemption."

Below are a couple of  examples of the 3.8 percent tax for higher-income homeowners in 2013:

Marcy and Dave owned their home for 30 years and then sold it, realizing a $525,000 gain. They have $325,000 adjusted gross income (AGI) before adding taxable gain on the house. The tax applies as follows:

Because the new tax applies to the lesser of (a) investment income amount, (b) excess of AGI over the $200,000 or (c) home-sale exemption amount ($500,000 for married couples), Marcy and Dave would pay $950 of new tax in addition to the capital gain on $25,000.

If Marcy and Dave had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8 percent tax. Whether they paid the 3.8 percent tax would depend on the other components of their $325,000 AGI.

Sale of a second home (with no rental income more than 14 days).

The Larsen’s owned a vacation home that they purchased for $275,000. They have never rented it to others, except to  neighbors and family members for a weekend here and there.. Their annual rental days have always been fewer than 14 days.

They sell it for $335,000. In the year of sale they also have earned income from other sources of $225,000. The 3.8 percent 2013 tax would apply as follows:

Remember that any new tax on real estate will be for higher income individuals and this is not scheduled to take hold until 2013. Since three major tax changes occurred in 2010, expect more changes before 2013. 

For more information on this subject type “NAR, 3.8% Sales Tax” into your search engine. The National Association of REALTORS® has created a comprehensive list of the Real Estate 3.8% Tax Examples and Scenario’s in pdf form.

Article by

Gina Warrington-Finely

Oakcreek HOA