Is There Really A Provision In The Health Care Bill That Will Tax The Sale of Your Home? The answer is yes, well no, well…it’s a definite maybe.

I have been asked this a lot lately by sellers who have heard there will be an almost 4% tax on profit from the sale of their home. It is true that buried in the health care bill is a 3.8% tax, called a Medicare tax. The tax however is not levied as a straight tax on the amount you clear after expenses. The following is an excerpt from a Q and A on the National Association Of Realtors website that explains it quite well with an example.

Q-9: Will the $250,000/$500,000 exclusion on the sale of a principal residence continue to apply?

A: Yes. Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.

Q-10: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?

A: The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.

So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.

This is hardly ideal for an industry struggling to recover nor is it good for homeowners selling their homes perhaps at already reduced levels due to the market conditions. Seems contradictory when just a year ago, for a short time, there were tax credits of up to $6,500 for some sellers and up to $8,500 for first time home buyers.

Regardless of the merits and politics of the Health Care initiative this tax proposal should be eliminated.

To learn more click here to go to the full National Assn Of realtors report. click here