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Is There A Real Estate Tax Included In The Health Care Bill?

Someone emailed me recently asking if it was true that there is a real estate sales tax due to go into effect in 2013 on all real estate transactions.  The answer is yes, sort of.   There is a tax on real estate in the health care bill passed this past summer.  It is a tax that affects a very small number of Americans directly and will not be a tax on all real estate transactions.

Starting in 2013, individuals with incomes over $200,000 will have to pay a 3.8% tax on profit from the sale of their primary residence or investment properties over a certain profit threshold. The exact amount will be based on a formula that includes the profit from the property and the income above $200,000. The tax is not an income tax, but rather it is a “payroll tax”… officially it is a Medicare Tax.

This new tax applies to investment income, dividends, real estate profits– all “unearned income”.

Here’s how the tax might work when applied to specific scenarios.

A person with an income of $200,000+ purchased an investment property for $400,000.
The home is now sold for $1,000,000, a $600,000 profit.
The full $600,000 profit is applied to the new tax rate of 3.8% ($22,800 new tax) plus the usual income tax rate.

A person with an income of $200,000+ purchased a primary home for $400,000.
The home is now sold for $1,000,000, for a $600,000 profit.
The first $250,000 profit is tax-free.
The additional $350,000 is subject to the new 3.8% tax, costing $13,300 (plus the applicable income tax).

A married couple with an income of $250,000+ purchased a primary home for $400,000.
The home is now sold for $1,000,000, a $600,000 profit.
The first $500,000 profit is tax-free.
The additional $100,000 is subject to the new 3.8% tax, costing $3,800 (plus the applicable income tax).

A married couple who makes less than $500k profit on their primary home will pay no extra tax, and a single person who makes less than $250k profit on their primary home will pay no extra tax.

If you would like to receive more information on the real estate market and legislation affecting real estate, visit the Las Vegas Home Specialist website and sign up for Market Updates.

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