Don't Believe Everything You Read

There are a slew of emails floating around out there that seem to be meant to scare people into believing that the new health care bill will greatly increase taxes for those selling their homes. In the event you have not yet been on the receiving end of such emails, it reads like this:

“Under the new health care bill - Did you know that all Real Estate transactions are subject toa 3.8% "Sales Tax"? You can thank Nancy, Harry & Barack (and your local Congressman) for this one. If you sell your $400,000 home, this will be a $15,200 tax. Higher taxes on real estate investments. The 3.8% Medicare surtax would hit average, middle-class investors in real estate. A middle-class taxpayer who happens to sell real estate for a gain in a particular year would be liable for this new tax, regardless of how low her income might be in other, more typical years.”

Despite what the email says, it’s simply not true. According to the National Association of Realtors, the new law does not at all impact average home sellers, just a handful of those in the very top income bracket.

FactCheck.org, a non-partisan website breaks it down a little further: “The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.”

According to the National Association of Realtors, half of all existing homes sold for $170,700 or less in March of this year. Obviously, none of those sales could possibly generate a $250,000 profit and so none would be subject to the tax.  Bottom line, for the vast majority of people, a typical home sale would not incur any tax and the 3.8 percent tax will not apply.

If you need further reassurance of who would have to pay the tax, here’s another summary from FactCheck.org:

• A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
• An "empty nester" couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the half-million-dollar exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.

There you have it. Next time such an email lands in your inbox, before pushing that forward button and passing along misinformation, take a minute to look into what it says. You might just find it more valuable to click delete instead.