IS IT TRUE? WILL THE RESIDENTIAL REAL ESTATE BE TAXED 3.8% AS PART OF HEALTH CARE REFORM BILL?
Recently, a friend of mine mentioned that the new health care reform bill was going to include a 3.8% sales tax on the sale of homes. I think I blurted out, “you’ve got to be kidding me!” Of course, I had to come home and research the details.
Before I got to doing the research, I had all kinds of expletives circled around in my head. Thankfully, they stayed inside there. Other thoughts included; could our leaders in Washington really be that stupid? Hasn’t the housing industry already gone through enough trauma? Why would Washington want to kill the real estate business and therefore the economy?
My research did verify the new health care reform bill does in fact have a provision to charge 3.8% sales tax on the sale of homes, but there is much more to it than that though. The 3.8% real estate sales tax only applies to single tax payers making more than $200,000 or joint taxer payers making more than $250,000 AND you wouldn’t pay on the first $250,00 in profits for a single tax payer or $500,000 in profits for a joint tax payer.
Whew…I was worried there for a minute. All the residential real estate I own has dropped 40-50% in value so no need to worry about profits. For many us real estate types, it will be many years (if ever) before we work off carry forward losses from real estate activities of the last several years, so income thresholds aren’t an issue either.
My friend made it sound like it was a straight dollar for dollar 3.8% sales tax, which would have been the single stupidest thing Washington could have done since the beginning of the republic. I am never glad to hear Washington is tinkering with the market in which I earn my living, but I am glad to know that this 3.8% sales tax only applies to profits over 500k for joint filers. The 500K profit threshold pretty much eliminates most home sales unless the homes are selling for millions of dollars, which is a very small percentage of homes.
I think the potential bigger issue may be commercial properties owners where buildings that cost millions of dollars could easily appreciate a small percentage but increase in value $250K or $500K in net terms. The year you report the sale, your income would be increased by the net profit from the sale of the building. For example, a retired couple on a fixed income could sell a commercial property from a business they once owned. Even though the couple is on a relatively small fixed income, the sale of the building would trigger them into the 250K income class when the profit of the sale exceeds 750K. Again, this might not happen that often, but one thing we know for sure…Washington put the provision in to raise revenues and that it will.