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Have you heard grumbling in the real estate community about the alleged affect the healthcare law will have on real estate taxes?

  • Yes. (70%, 217 Votes)
  • No. (30%, 93 Votes)

Total Voters: 310

Rumor has it the healthcare law recently upheld by the U.S. Supreme Court will adversely affect sellers of real estate, causing them to pay a 3.8% surtax on their home sale.

There is a grain of truth to this gossip, though it will affect very few homeowners.

Effective January 1, 2013, single-filing taxpayers with an adjusted gross income (AGI) greater than $200,000 and couples filing jointly with an AGI more than $250,000 will be subject to the new 3.8% surtax on any capital gains on investment income exceeding a prescribed threshold.

If the capital gain realized on the sale exceeds the principal residence profit exclusion limit of $250,000 for single-filers and $500,000 for joint-filers, the amount exceeding the threshold will be taxed at 3.8%.[Internal Revenue Code §121]

Verdict: this surtax will affect only high-income taxpayers, and even then, only those rare few who will net a profit on the sale greater than $250,000.

first tuesday take

So who is worried, exactly? Sellers won’t be making capital gains large enough to qualify for the surtax for many, many years. Aside from the aberrant real estate Millennium Boom from the early 2000’s, home prices historically increase at the rate of inflation (about 2% per year).

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Thus, a mid-tier home purchased by a single-filing taxpayer (with an AGI greater than $200,000) for $300,000 today will be exempt from this rule until he is able to sell the property for at least $550,000. At an average appreciation rate of 2% per year, this will not occur until the 2040s.

This surtax misunderstanding is the result of mean-spirited political gossip; mostly in the form of mass e-mails (perhaps you or your clients received one?). The idea is to tell only a fraction of the story — a piece designed to instill ire — then let the speculation run rampant. Intentionally misleading information promotes paranoia and misinforms the public (particularly sellers), yet proves fruitful for those with political agendas. Agents must know the facts — all of them, not a sound-bite fraction—in order to combat deceit and keep their anxious sellers informed.

Let’s set the propaganda straight: this new surtax will affect very few homeowners. However, it does not mean that none will be affected. High-income sellers may wish to seek professional tax advice beyond the casually forwarded e-mail, especially if they own multiple investment properties or vacation homes.

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Re: Health-care law’s 3.8 percent surtax will not affect many home sellers from the Washington Post