The Health Care Reform Act (Obamacare) will impose taxes on some investment income and most likely will not effect most real estate property sales. After reading several articles including one on the website factcheck.org, the following is my understanding of how the new health care law will effect real estate sales taxes. Please check with your accountant to be sure of how it may impact your own personal taxes.
- Some profits from property sales will be taxed 3.8% for individuals who earn over $200,000 a year or couples filing jointly earning over $250,000 a year.
- Profit (Sales price lest the cost basis of your home) is currently exempt from taxation for individuals up to $250,000 and couples filing jointly up to $500,000. This is not expected to change and therefore the additional 3.8% tax from the health care law would not be imposed under these circumstances.
- Taxes for individuals who earn over $200,000 a year and sell a personal residence with a profit of over $250,000 would pay a 3.8% tax on the profit over $250,000. For example, if the individual’s home sells for a profit of $280,000 there would be a tax on $30,000 in the amount of $1,140.
- Taxes for couples filing jointly who earn over $250,000 a year would pay an extra 3.8% tax if the profit on the sale of their personal residence exceeds $500,000. For example, if their home nets them a profit of $650,000, they would pay this additional tax on $150,000 in the amount of $5,700.
- Investment property and vacation homes are not included in the above exemptions and profit would be taxed. For example, an individual earning over $200,000 in income in a given year who sells a rental house with a profit of $40,000 would pay an additional tax of $1,520. A couple filing jointly who earn over $250,000 in a given year and makes a profit on a vacation home would pay the same tax.
- The average home sales price is approximately $170,000 and therefore most people selling their home would not be taxed this 3.8% from the Health Care Reform Act.
It is important to remember to check with your accountant to confirm whether the Healthcare Reform Act will cause any additional taxation on your real estate sales transactions.