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A new 3.8% tax on Real Estate beginning January 2013

A lot of people are worried about paying the new sales tax on property beginning January 1, 2013. But before you panic, be aware that this new health care law imposes the the 3.8% tax on PROFITS from selling your home for only a very small minority.

The first $250,000 in profit for a single person or $500,000 for a married is not taxed. Only the profit above these amounts are taxed. So if you are living in Oklahoma selling a home for $150,000, there is no way that this tax is going to apply to you.

Second your AGI (adjusted gross income) must be above $200,000 for a single person or over $250,000 for a married couple.  Now the Taxable gain will add into your overall AGI but all the same if you are not making a profit on the house above the amounts listed above you do not have to worry.

Third the tax is only on the Profit above the amounts listed above. This would be in addition to any capital gains taxes that would already be required on these profits.

In my opinion, the people who are going to be taxed are either the very wealthy who have high end properties, or people who bought the house a long time ago and saw a huge gain on the property and are now downsizing. However, the majority of the home sellers will simply not meet the criteria to be taxed.

The following was an example given by Gary Keller at Family Reunion.

Capital Gain: Sale of a Principal Residence

John and Mary sold their principal residence and realized a gain of $525,000. They have $325,000 Adjusted Gross Income (before adding taxable gain). The tax applies as follows:

AGI Before tax Gain                                     $325,000

Gain on Sale of Residence                              $525,000

Taxable Gain                                                   $25,000   ($525K-500K)

New AGI                                                        $350,000

Excess of AGI over $250,000                                    $100,000  ($350K-$250K)

Lesser Amount                                                $25,000

Tax Due                                                          $950  ($25,000 x 3.8%)

If John and Mary had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax.

This is not a sales tax on the amount of the sale of the property, ONLY THE PROFIT over the $250,000 for single filers or $500,000 for married filers.  I hope this puts your minds at ease. As for most of us we will not pay this tax.

The IRS 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 last five years prior to the sale.

I am not a CPA, so if you have other questions or need further clarification, please contact your CPA.

If you have questions regarding real estate please feel free to contact me at 405-213-2992 or visit my website http://www.sandiwalker.com

 

 

 

 

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