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Fact vs. Fiction
The Rumor:
You may have received the following e-mail quoting an article by Paul Guppy. (Mr. Guppy has since corrected
his article).
UNDER THE NEW HEALTH CARE BILL – DID YOU KNOW THAT ALL REAL ESTATE TRANSACTIONS
ARE SUBJECT TO A 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
The Truth:
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. The tax falls only on that portion of any gain that is
“taken into account in computing taxable income” under the existing tax code. And the fact is, the first $250,000 in profit
on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already.
(That exclusion doesn’t apply to vacation homes or rental properties.) A footnote in the Health Care bill states
income does not include items, such as interest on tax-exempt bonds, veterans’ benefits, and excluded gain from the
sale of a principal residence, which are excluded from gross income under the income tax.”
: “GrossThe Facts:
Under new IRC §1411 the tax for individuals is 3.8% of the
1. Net investment income, including rental income and gain from the sale of a residence
above)
2. The excess of modified AGI, (without regard of foreign earned income exclusion) over the threshold amount of
lesser of either:included in AGI (see¨
$250,000 MFJ¨
$125,000 MFS¨
$200,000 all othersThe Example:
MFJ with AGI of $249,000 and net investment income of $10,000 = no tax
Single with AGI of $249,000 and net investment income of $10,000 = $380 additional tax
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