Obamacare “Real Estate” 3.8% Tax – Fact and Myth

Another Dose of Kool-aid

What you are about to read hopefully will clarify some of the confusion surrounding a provision in the Patient Protection Affordable Care Act, PPACA (ObamaScare) that provides for an additional MEDICARE tax to be levied, on not only home sales, but also net investment income from interest, dividends, annuities, royalties, rents, passive investment activities, income from the trading of financial instruments and commodities, and gain from the sale of non business property, such as your home.  Regardless of how this tax works or if it is not as bad as it first seems, many thought it was a tax on all home sales, why wasn’t this disclosed during the year-long discussion of ObamaScare.  AND, will this provision remain as is or be modified and made worse by the regulations that are just now being written. 

This is not intended to be tax advice.

 To further complicate this part of ObamaScare, the new tax works in tandem with the capital gains tax which is set to increase this year from 15-20% for most taxpayers.  That aside, here is the basic outline:

Income Period:

  • Applies to all tax years after December 31, 2012.

Included Transactions: (subject to the limits below)

  • Gains from the sale of homes and other non business property
  • Interest Income
  • Dividend Income
  • Annuities
  • Royalties
  • Rental Income
  • Income from Trading financial instruments and commodities (stocks, bonds etc)

Limitations:

  • Lesser of the Net Investment Income or the Excess of Modified Adjusted Gross Income over a threshold amount of usually $250,000 for joint returns and $125,000 for married filing separate returns and $200,000 for all others.
  • If you are filing a joint return and realize a profit on your home less than $250,000 you should be ok unless you get hit with capital gains taxes.  Also, the current law does not discuss Alternative Minimum Tax ramifications.
    • If you realized a profit of $500,000 from the sale of your home and you are filing jointly, it seems like you would have to pay 3.8% times ($500,000 – $250,000) = $9,500.

You should obviously talk to your tax consultant if you are thinking about selling your home around the start date of January 1, 2013. 

Those who live in the hardest hit states relative to the real estate crash, California, New York, and Florida will be more likely to be subject to this new tax.  As usual,  Congress treats these states the same as Idaho and other lower cost real estate markets.

The bottom line is that once again you were not told what was in ObamaScare.  This is being played like the classic left class warfare and only the Rich will get hit.  You can bet the Rich will dump their subject properties before this kicks in so Obama and Co. will have to come up with another revenue source and you can bet it will be the middle class.  This will only serve to deepen the housing market trough.

RD Pierini

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