The impact of the 3.8% Medicare Tax on Your Home Sale

Two years ago, when the Healthcare Reform Act was enacted, it created a new tax that will go into effect in 2013. Many people believe that this tax targets real estate sales.  However, according to the National Association of Realtors (NAR), it does not, and it is estimated that the new tax will only effect 2-3% of people selling their homes.  NAR describes the tax as being more like a capital gains tax- due when you file your income tax return- not like a property transfer tax that you would pay at the closing table when you sell your home.

Whether the tax would even apply to a homeowner is based on several factors, including household income, federal tax filing status, and the amount of gain (not sales price) of the sale of your home.  The tax only applies to individuals whose income is over $200k per year, or $250k per year for people filing jointly. Furthermore, the gain on the house (not the sales price) would have to exceed $250k for individual filers, or $500k for people filing jointly.  Only the portion of the gain that exceeds those limits is subject to the new 3.8% tax. Considering the real estate market we seen for the past few years, I find it doubtful that most people would have that kind of equity in their homes.

There is a great article on one of NAR’s blogs that further elaborates on the new tax and whether this is all much ado about something that will not even effect 97-98% of sellers.  Here is the link for the full article: http://realtormag.realtor.org/news-and-commentary/feature/article/2012/10/38-tax-whats-true-whats-not.  The article also contains a 6-minute video from NAR that helps diffuse any unfounded rumors you may be hearing about the new tax.

Of course, none of this information should be construed as being tax advice.  Other criteria is used when the home is not your principal residence.  It is alway advisable that you consult your tax professional if you have questions about your specific circumstances when you sell your home.

Feel free to contact me, if you would like a copy of the NAR publication which summarizes information and examples of how this tax applies.

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