Friday, July 30, 2010

Sales tax on Real Estate Sales: Fact or Fiction?

Fact or fiction? The health-care law and real estate tax



By Benny L. Kass
Special to The Washington Post
Saturday, July 17, 2010 
 
Rumors are flying that the health-care legislation Congress passed this year will impose a sales tax on all real estate sales. But the rumors are based only partly on fact. Although there is a new tax, it will not apply to everyone, and existing tax breaks for home sales will remain in place.

The Health Care and Education Reconciliation Act of 2010, which President Obama signed into law March 30, is comprehensive and complex. Section 1402, "Unearned Income Medicare Contribution," imposes a 3.8 percent tax on profits from the sale of real estate -- residential or investment.

But the levy is aimed at high-income taxpayers, leaving most people untouched. And it will not take effect until Jan. 1, 2013.

Let's look at the facts of this new law.

First, it is not a sales tax, nor does it impose any transfer or recordation tax. It is called a Medicare tax because the money received will be allocated to the Medicare Trust Fund, which is part of the Social Security system.

Next, if your adjusted gross income is less than $200,000, you are home free. The income thresholds are clearly spelled out in the law. If you are married and file a joint tax return with your spouse, the law will apply only if your income is more than $250,000. (If you and your spouse opt to file a separate tax return, the threshold is reduced to $125,000 each.) For all other taxpayers, you have to make more than $200,000 to be covered under the new law.

The up-to-$500,000 tax-free exclusion of gain for married couples filing a joint tax return (or up-to-$250,000 for single taxpayers) has not been repealed, and the right to deduct mortgage interest and real estate tax payments has not been eliminated.

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