With the election approaching, many of you are asking again about a 3.8% tax on the sale of your home as part of Obamacare. Truth is, most of the info you hear is exaggerated and alarmist. Here is the original post from October 2010:
One of our clients was recently alarmed to hear on a radio talk show that he would owe an additional 3.8% sales tax on profits from selling his home in connection with the new Affordable Care Act (Obamacare) health-care law.
We can put your mind at ease that most sellers will not have to pay this tax. In truth, only a small percentage of home sellers will.
Sellers with incomes over $200,000/year ($250,000 for a married couple filing joint returns), will be affected by the tax. Even then, the tax won’t apply to the first $250,000 on profits received in the sale of a personal residence. In the case of married couples, you are not taxed on the first $500,000 of profit.
Besides understanding the above limits for hitting the tax bracket, further confusion has arisen around the amount to be taxed. It is ONLY the profit over the $250k or $500k limit made on the home that is taxed -- not the entire sale price. Therefore, if a single person makes $210,000 a year and sells his $300,000 home for a $50,000 profit, the tax is only applied to the $50,000 profit. This would result in a tax of $1,900 -- not the $11,400 if it was applied to the sale price.
It is safe to say, the new 3.8% Medicare surtax won’t affect very many Western New York sellers.