Recently there’s been a lot of chatter about a supposed 3.8% real estate sales tax to be implemented in 2013 under the new healthcare bill. We looked to what other experts are saying about it and as it turns out, the rumors are indeed, JUST RUMORS.
Factcheck.com set the record straight:
“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.
It’s easy to see how the misconception started. Written in highly technical language that only a qualified tax expert would understand, the bill says, “The tax falls on ‘net gain … attributable to the disposition of property.’” Which would include the sale of a home.
“The bill also says 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.” Note: Exclusion does not apply to vacation homes or rental properties.
Factcheck.com further explains:
The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 135 of its report on the bill. The note states: ‘Gross income does not include … excluded gain from the sale of a principal residence.’
And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. ‘Some home sales would see a tax increase under this bill,’ Ahern told us, ‘but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).’
The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller’s ‘main home’ for at least two years out of the five years prior to the sale.
According to Sara Orrange, Government Affairs Director, Spokane Association of REALTORS, “Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made.”
And there you have it. We hope this helped to shed some light the issue. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.