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Does Obamacare impose a Real Estate Sales Tax?

Does Obamacare impose a Real Estate Sales Tax?

In short, NO.

Ever since the creation of the Patient Protection and Affordable Care Act (PPACA, aka the ACA aka Obamacare), there have been email forwards screaming about the sky falling because Obamacare created a Real Estate Sales Tax and it was going to tax you all to hell! ZOMG! Here is an exerpt from one of those emails:

So, this is 'change you can believe in'?

Under the new health care bill all real estate transactions will be subject to a 3.8% sales tax.

If you sell a $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation....

Does this make your November, 2012 vote more important?

 That's pretty damning stuff, right? Yeah... not so much.

There is NO Real Estate Tax in Obamacare!

Where does this come from? What IS in the bill is a 3.8% Medicare tax on certain capital gains for certain people. 

Firstly, the Medicare tax only applies if your income is already over $250,000 a year for couples ($200,000 for singles) which excludes like 97% of all Americans right out of the gate. 

Secondly, the 3.8% only applies to the amount that exceeds the Capital Gains thresholds which are $500,000 for couples and $250,000 for singles. Remember though that Capital Gains only applies to the PROFIT on the transaction.

Let's say Dick and Jane make $150,000 a year at their jobs. When they sell their home the Medicare Tax doesn't apply at all. 

Now let's say Dick and Jane have very nice jobs and they make $300,000 a year then they are potentially eligible to pay the Medicare Tax. Now let's say they bought a house in 2001 for $171,000 (that's the median home price in Jan 2001) and they want to sell in 2014 (the law takes effect in 2013) and they manage to sell the house for 3 TIMES the median home price which would be $636,000 (median home price in Oct 2011 of $212,000 which is the latest census data I can find) for an unthinkable profit these days of $465,000! Even though they made a huge profit, they will NOT pay any additional taxes on that massive profit. 

Now let's say Dick and Jane managed to find a wicked good deal and they sell that house for $721,000 (3.4 times the median home price) for a profit of $550,000. Since they are a couple the Medicare Tax doesn't kick in until they pass $500,000 meaning the taxable amount is $50k. 

That tax can be applied in one of two ways:

1) they pay the 3.8% Medicare Tax on their taxable income above $250,000 (or $200,000 for singles). They were making $300k a year before the sale and the amount of taxable income after the $500k was $50k. So... $300k + $50k = $350k but they only pay on the amount in excess of $250k so the taxable amount is $100k. The amount that the 3.8% Medicare Tax is applicable to is $100k for a total tax of $3,800. 

OR 

2) they can pay the 3.8% on just the $50k over the $500k exemption which would be $1,900. 

They pay whichever amount is lower. 

So, if you make more than $250,000 as a couple (or $200,000 single) AND you make $500,000 in PROFIT (or $250,000 PROFIT as a single person) then you'll pay the 3.8% on a very small portion of your profit. 

If a couple walked away from the above deal with $721,000 and they were already making $300,000 at their jobs ... They'd pay $1,900 in extra taxes. 

If you get a scary email forward warning you about the sky falling... remember that they're usually wrong. These things get passed around in the darkness because when exposed to the light of public inspection they fall apart. If you ever get an email forward warning you about the evils of Democrats or the evils of Republicans, get your ass over to Snopes.com and look it up because they've done the research for you to let you know what is true and what is false.

 

 

 

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