Did you know if you sell your home after 2012 you will pay a 3.8% sales tax on the sale of your home?
This is a common email forward going around today. Email first and ask questions later. That seems to be how this subject is being addressed. Is this true? False? Somewhere in between? Everyone seems to have their opinion. A debate isn’t going to spell out the truth about this rumored 3.8% sales tax on home sales.
So, what is the truth?
- There is a new 3.8% tax in the bill.
- It is higher than President Obama’s proposed rate of 2.9%
- It’s NOT a “sales tax” on all real estate transactions.
- It is a Medicare tax.
- This will NOT affect many people.
- It is going to affect investment income from interest, dividends, annuities, royalties, capital gains and rents for so-called “high earners” of more than $200,000 annually, joint filers reporting more than $250,000 and $125,000 for married filing separately.
- The tax comes into effect in 2013.
Stuart and Emma are married and file a joint tax return. They have $260,000 of salary income combined and $50,000 of investment income from dividends and capital gains. Their adjusted gross income is $310,000. They don’t have any foreign income exclusions.
How do you calculate this tax? (figures refer to Stuart and Emma’s situation above)
- Step 1: Calculate the net investment income. ($50,000)
- Step 2: Calculate the modified adjusted gross income in excess of the threshold amount. ($310,000 minus $250,000 for joint filers = $60,000.)
- Step 3: Take the lower of net investment income or modified adjusted gross income over the threshold. ($50,000)
- Step 4: Take the number from step 3 and multiply it by 3.8%. ($50,000 x 3.8% = $1,900.)
Check out other income scenarios in the NAR brochure.
You may also want to reference Internal Revenue Code sections 1401, 1411 and 3101.
Realtors are not qualified to give legal nor tax advice. I highly recommend consulting a tax adviser and/or a real estate specific attorney for your individual needs.