Real estate tax myth debunked

Since the passage of the Affordable Care Act in March 2010, individuals and groups on all sides of the healthcare issue have been responding to various provisions included in the new law and regulations. Unfortunately, not all of the claims about the law have been accurate, making it difficult for those who really want to understand the changes.

This post is not intended to debate any of the substantive issues involved in the legislation and its implementation but to help debunk one particular myth being spread through the real estate industry.

Over the past 18 months, some of you may have received an email saying something like:

• Did you know that if you sell your house after 2012, you will pay a 3.8% sales tax on it? That’s $3,800 on a $100,000 home, etc. When did this happen? It’s in the health care bill and goes into effect in 2013. Under the new health care bill all real estate transactions will be subject to a 3.8% sales tax.

It sounds terrible…but it is simply not true.

As explained by NAR:

• Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation becomes effective in 2013, it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.

And perhaps most importantly for some Realtors®, the existing capital gains exclusions that apply to residential real estate still apply. Even if a seller has an adjusted gross income above the income threshold, the new tax only kicks in if the profit from a sale (not the sales price, but the profit) is greater than $250,000 for an individual or $500,000 for a married couple.

So why write about this if there really is a tax that could apply to real estate transactions?  Simply put, PAR (and other states) wants to be sure that you have the facts when you’re discussing important issues that affect your business.

NAR has developed several resources to help explain these provisions to Realtors®, including an informative blog post with a video, and a comprehensive brochure with various scenarios showing when the tax would and would not apply. If you have any questions about the issue, you should read both documents and contact NAR for any further clarifications.

“I have found chain emails to be a very reliable source of truthful and accurate information.” – Sir Winston Churchill