Venice Bits

I was contacted by a past client who received the following e-mail in her inbox.

The e-mail began, Did you know that if you sell your home after 2012, you will pay 3.8% sales tax on it?  That $3,800 on a $100,000 home.........on a $400,000 home, there will be a $15,200 tax.....  Under the new health care bill real estate transaction will be subject to a 3.8% sales tax. 

She e-mailed me,  Is this true?    

My reply was yes and no. Yes,  there is a tax; no, their figures are incorrect.  They did not provide AGI or take the home capital gain exclusion of $250,000 for individuals or $500,000 couples.  To figure the tax, you do not only calculate the sale price by 3.8%.

The 3.8% tax is on investment income of upper-income households to shore up Medicare.  It takes effect Jan., 2013 .

It will not be imposed on all real estate transactions.  It applies only  to individuals with adjusted gross income (AGE) above $200,000 or couples filing a joint return with more than $250,000 AGI.  The types of income is interest, dividends, rent (less expenses,) capital Gains (less capital losses).The tax applies to the LESSER of invesment  income amount OR excess of AGI over the $200,000 or $250,000 amount.

For example:

You and your spouse sold your home and realized a gain of $525,000 and a have $325,000 Adjusted Gross Income (before adding taxable gain).

     The tax applies as follows:

      AGI Before Taxable Gain           $325,000

      Gain on Sale of Residence         $525,000

      Taxable Gain (added to AGI)        $25,000   ($525,000  - $500,000)

      New AGI                                     $350,000   ($325,000 +  25,000 taxable    gain)

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

      Lesser Amount (Taxable)            $25,000   Taxable gain

      TAX DUE                                             $950  ($25,000 x 0.038)

Another example for second home buyers in Florida,  a couple who own a vacation home that they purchased for $275,000.  They never rented it and sell it for $335,000.  They have earned income from other sources of $225,000.

     The tax applies as follows:

      Gain on Sale of Vacation Home         $60,000   ($335,000 - $275,000)

      Income from other sources            $225,000

      New AGI                                         $285,000   ($60,000 + $225,000)

      Excess of AGI over $250.000          $35,000   ($285,000 - $250,000)

      Capital Gain                                     $60,000

      Lesser Amount (Taxable)                 $35,000   (AGI excess)

      TAX DUE                                          $1,330   ($35,000 x 0.038)

If you would like further information on this new tax rate, just email me and I can forward more information.   

Hope this helps everyone,  Alice