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
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Prospect Bay is a private community located in Grasonville Maryland. Prospect Bay is conveniently located approximately 15 minutes from the Chesapeake Bay Bridge and about one hour from Washington D.C. It is home to the Prospect Bay Golf and Country Club. The homes are a mix of waterfront and waterviews on Eastern Bay, Prospect Bay and Greenwood Creek as well as homes situated along the golf course.
Jimmy White is a resident of Prospect Bay and takes much pride and pleasure in specializing in home sales in this special community. For a complete tour of the community, country club and facilities and to see any of the homes currently available in Prospect Bay contact Jimmy direct at 410-320-3647 or by email at jimmywhite@longandfoster.com.
Follow the links below to see homes currently for sale in Prospect Bay as well as for more information on the Prospect Bay Country Club.
CLICK HERE for a listing of homes for sale in Prospect Bay.
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Long And Foster Real Estate is pleased to announce that Queenstown resident Gary Booth has joined the real estate team of Jimmy White at their office on Kent Island. Booth, who is experienced in auction and foreclosure property, will provide services to investors and end use buyers looking for the exceptional opportunity that distressed business and residential auctions can offer.
Booth comes to the team with years of entrepreneurial and sales experience as a successful businessman and has focused most recently on this specialized aspect of real estate. Booth says he decided on Long And Foster because of the strength of the company and support they provide to their agents and real estate customers. He chose the Jimmy White team for the strength of the Jimmy White Homes brand and the synergy achieved from matching what he does with auctions and what Jimmy does with retail. “Jimmy continues year after year to be the top team in the Queen Anne’s County area and I have been very impressed with his marketing savvy and especially his use of the internet”, said Booth.
White says that the market on the eastern shore has not been hit as hard as other parts of the country but as a result of overall economic conditions there has been an up-tick in homes in Maryland going to foreclosure. “It is very difficult for an individual buyer or investor to stay on top of what is gong to be auctioned and when it is going to be auctioned. What we will be providing is that necessary assistance to identify a property for a client, track it, and handle the bidding and settlement process.
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In my business over the past year I have seen an increase in the number of buyers choosing to pay cash as opposed to obtaining a mortgage. All but one were deals involving vacation or investment homes in the Kent Island area of Queen Anne’s County Maryland. Several were over a
million dollars
So why with rates so low and prices at their lowest in years are buyers using cash?
Several reasons come to mind. First, if a seller has had a home on the market for an extended period of time and has substantial equity they may leap at a lower offer of cash over a higher offer that involves home sales or financing contingencies that may or may not result in settlement. Cash is king, most often a cash buyer can get a better deal.
Additionally with no mortgage there is no Property Mortgage Insurance which can be thousands of dollars and things like costly appraisals are not mandatory and are done at the buyer’s discretion.
I think the increase in cash deals could also be an indication of increased confidence as people with substantial means are not feeling the need to hoard cash the way they might have a year or two ago.
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