Does the healthcare law really affect sellers of real estate?
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Have you heard grumbling in the real estate community about the alleged affect the healthcare law will have on real estate taxes?
- Yes. (70%, 217 Votes)
- No. (30%, 93 Votes)
Total Voters: 310
Rumor has it the healthcare law recently upheld by the U.S. Supreme Court will adversely affect sellers of real estate, causing them to pay a 3.8% surtax on their home sale.
There is a grain of truth to this gossip, though it will affect very few homeowners.
Effective January 1, 2013, single-filing taxpayers with an adjusted gross income (AGI) greater than $200,000 and couples filing jointly with an AGI more than $250,000 will be subject to the new 3.8% surtax on any capital gains on investment income exceeding a prescribed threshold.
If the capital gain realized on the sale exceeds the principal residence profit exclusion limit of $250,000 for single-filers and $500,000 for joint-filers, the amount exceeding the threshold will be taxed at 3.8%.[Internal Revenue Code §121]
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About The Author
Carrie B. Reyes
is lead writer in charge of the Real Estate Practice and Due Diligence and Disclosures books.
I agree that the tax will affect very few – throughout the Country. In Silicon Valley, it is easy to find a retired homeowner who bought their home many years ago (my unofficial turnover rate for the West Valley Area (Cupertino, etc.) is more than 18 years. Thus; the taxpayer who bought their modest home in the 70′s or 80′s in the range of $75K to $150K will be very likely a candidate for the surtax (our county median price is $685K and the cities I mention below will have a $1M+ median in aggregate). These unfairly taxed homeowners, will be quite common in years to come in the following communities I work in: Palo Alto, Menlo Park, Los Altos, Cupertino, Sunnyvale, Saratoga, Santa Clara, Campbell, Los Gatos, and a large portion of San Jose as well. All it will take is a little inflation along with the appreciation we’re experiencing now and your 2% estimate goes out the window. We also have multi-family (just your run of the mill duplex to fourplex) properties throughout the Valley that can be documented appreciating 10%+ in the past year alone. The folks most undeserving of the tax will be bearing the heaviest burden.
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Oh it won’t effect many people, right now. MayI remind the viewing audiance that the income tax , which we ALL PAY FOR, started out at JUST 2%……..Hmm, sounds like a familiar argument /justification.
Atax is a tax, that Libs like to collect and spend, not save……
PS suposedly OBAMA CARE helps the elderly, yet it will be the elderly, leaving their estate to their children who will behurt themost by this tax “benefit”
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The article is VERY confusing, especially as to whether AGI is calculated BEFORE or AFTER the capital gain on the sale of my house.
Suppose hypothetically. My wife & I have AGI that regularly is in the $120,000 range, plus/minus $5,000.
We purchased our home in 1992 for $360,000, and expect to sell it in 2013 for $960,000, a profit (capital gain) of $600,000.
Under existing law, we pay capital gains tax on $100,000, which is the excess over the $500,000 exemption/exclusion for couples filing jointly.
But would we also get stuck with an additional 3.8% surtax, a tax bill of $3,800?
The 3.8% surtax applies only to couples whose AGI exceeds $250,000. Thus If you use our pre-sale AGI of $120,000, the surtax does NOT apply. But if you include in our AGI the one time profit/capital gain from the sale of our home ($600,000), then we are stuck for the surtax.
The article is confusing, at least to me.
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We bought our home in 1970…….$16,500…….
House is right around $400…….
So you say i won’t have an excise tax……
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Living and working in the San Joaquin Valley it doesn’t appear the excess over 500k will effect very, very few sellers. Namely, those who have taxable over $250,000 and that kind of equity.
In my case, in the event I sell after 2012, I may have to pay but I really don’t have a problem with it.
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The problem will be that when the cost of the health care bill gets in place were already from .9 trillion to 2.7 trillion and we have over a year before it is instituted and you know the costs are not going down. That 3.8% tax will go down and I mean that it will end up affecting everyone. Just take a look at all the government programs they have all been changed so much you would not know the original bill and all of them have made it easier to add people to them. Look at social security, it was for people who put into social security but now if your an alcholic or dopper you do not need to put a penny into the program just go down with doctors letter saying you are an addict or a alcholic and boom you will be getting ss checks. All government programs are full of fraud and abuse and we should not add any other programs until the government can show the citizens it can clean up all the other programs.
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Thousands of California’s real estate sellers will be affected by Obama’s tax on real estate sales, including home sales! It’s wrong to misslead people into thinking thet won’t be affected.
Instead of publishing a misleading quote from a prejudice source such as the Washing Post, i suggest that you should do your journalistic duty that is to recearch the issue throughly and report the ALL the facts and let readers reach their own conclusions based on their own circumstances.
Glenn
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I am aware of scores of people, including myself, living in the North Tustin, Cowen Heights and Lemon Heights area of Orange County, who will be affected by the ObamaCare tax. There will be countless people who will be taxed in our Coastal areas also.
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The issue of ObamaCare goes way beyond the real estate industry. This new law will permanently alter the relationship between citizen and the state. Any article downplaying this fact does a tremendous disservice to concerned Americans and America.
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Let’s not cover just the 1 to 4 unit owner occupied homes. There are lot’s of vacation homes, rental properties, property flips, etc, that could be affected by this law. That is where the real meat of the law apparently lies, so let’s cover the really important stuff – not almost totally ignore it.
Lee Willard, EA, R E Broker
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I am a CTEC registered tax preparer, besides maintaining an RE sales license. What I see coming:
@Bullmoose – The taxable capital gain that will be included on your Form 1040 will be the 100,000, and your tax will be computed using Schedule D (capital gains). The regulations for how the surtax will be computed have not been published by the IRS. If you do your own taxes, you may consider talking to a professional to get clarification of your situation.
@Jerry Irons – You are correct. We are in the foothills (Calaveras County), and I follow what is going on in the four or five counties near us (my tax clients come from all over). In most of the central valley and foothills, there will be a fairly small number of homeowners affected. For the roughest estimate, count the number of listings (or get the %age) that are more than 250K (singles) or 500K (married). Not all that many …
@Glenn Davis – The sky is falling! The sky is falling! Thousands will be affected inasmuch as they will actually have to do the paperwork to find out whether they have a taxable gain and then whether the surtax applies. A vanishingly small number of sellers (including those forclosed on) who do not live in the high-rent areas will probably not be affected. High-rent areas … depends a lot on circumstances, but read on.
@Lee Willard – You are right, if I am reading between the lines correctly. Sellers of second homes have the largest exposure because there is NO exclusion of profit for a second home. But there are strategies to get around this (as I am sure you advise your clients).
@Mark Burns and @John W. – My heart bleeds for people in this situation. This is (finally!) the price you pay for living in a high-rent district. Homeowners have been bleeding the state white on oversized mortgage and property tax deductions for decades. Now you snivel that it isn’t “fair” for you to pay tax on an “investment” that has appreciated by virtue of you sitting on your butt? Any married couple with 500K in profit on a _depreciating_ asset is really in a tough spot. Sorry if I am not sympathetic, but what goes around, comes around.
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I’m a Real Estate Broker and Financial Planner in the Bay Area. Steve B your comments started as helpful but turned bitter and out of touch of who owns real estate now. Most of the recent buyers bought homes with no money down and now have lost their home so this doesn’t affect them. This tax does effect the many millions of homeowners in their 40s and above who saved their money and bought real estate based on the past govenment’s tax incentive to buy real estate. The new government’s idea to increase taxes on those who choose to save their money instead of spending it isn’t good for the economy. Your statement that homeowers have been bleeding the state and country is incorrect. The govenment has misspent our hard earn dollars. Instead of reducing their expenses as any other business would when they are over budget, they want to increase taxes to misspend more money. Is this the what goes around comes around or is it I use a tax preparer that is out -sourced to another country and you lose your job? Or is it that my many years at the library to get my 3 degrees plus working 12 hours/day to increase my business so I can live in a wonderful place like the Bay Area be penalized by those that were too lazy or unmotivated? Is that my karma? Or should your efforts better be spent on voting out corrupt politicians and unfair laws (passed only to increase the health care companies proft statements). This is what is ruining our (yours and mine) country.
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Did I miss something in the story? What the hell is a REAL ESTATE surtax doing in a healthcare bill anyway.
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Who writes these reviews to support the Obama Tax increases??? This will affect most of us – DOWN THE ROAD – TODAY it is affecting a lot of people, Contrary to what you seem to think. Get your facts more in line with reality and quit trying to slant things to make Obama Care sound good. You are a reporter and are supposed to be objective – if you had all the facts BEFORE you wrote the article it MIGHT have been more balanced – I repeat – MIGHT have been.
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Ms. Reyes, I do not understand why Liberals, such as yourself, think it is okay to add taxes onto people for either being successful or benefiting from success ( inheritance, etc ) this tax along with the whole ACA bill is nothing more than a power and money grab. just more of Obama’s class warfare garbage. for the most part, the difference between successful and non-successful people is the willingness to take a risk. I am not a rich man by any stretch, but, would never feel that I have been cheated because of someone else’s success. I have a question? why are a great number of famous Liberals who espouse wealth redistribution Multi-Millionaires, such as our president. you would think that anyone who advocates these ideas would be willing to give the majority of their wealth to the Government and live without the niceties we enjoy today. sorry for the diatribe, but, most of your respondents already have made some good points.
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If you are going to use your home as an investment there is nothing wrong with paying a little tax on it. Some of you people sound like spoiled little brats who don’t want to pay tax on investment (or anything for that matter) and who just plain sound greedy to me…
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This real estate tax, which has no possible relation to health care, will affect everyone down the road.
Add to that the rise of capital gains tax to 20% from 15%.
As a company supposedly helping real estate issues, how is it that you constantly write propaganda for the current administration, who is an enemy of business?
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It appears that the author of,this article presented a very one sided point of view, and also the opinion presented is not based on historic fact of California real estate appreciation, but on a faulty opinion and bias.
California has many high end communities where about 50% of the residents ( literally thousands and thousands) purchased their home 30, or so, years ago for the then market price of around $300,000 and hit $3,000,000 at the 2006 market peak and dropped 33% to around $2,000,000 today. Many of these folks are now reaching retirement age and desire to sell and have a whopping $1,700,000 capital gain. Why is it fair that they should have to pay an ADDITIONAL 3.8% tax to help Obama health carter and the 47 5 who pay no taxes at all?
Also, the author is wrong wrong wrong regarding the appreciation rate of homes. It is a fact here in California that homes doubled in value each decade (each 10 years) between 1970 and 2000 even before the wild appreciation after the year 2000. Based on the “rule of 72″ ( where one diced the length of time it takes to double by the number of years one gets the rate of appreciation) such doubling each 10 years is a 7.2% rate of appreciation which is far far greater then the rate of inflation. Based on the historical rate of appreciation between 1970 and 2000 it is far more likely that once the Banks get rid of all the backlog of foreclosures, which Banks sell below market rates thus driving down home prices, that real estate will, return to the historic rate of appreciation of around 7%.
In the more desirable communities of California there generally is little land available to build on and slow growth policies prevent the supply of new houses to keep up with the demand for housing and State population growth. This imbalance in supply and demand in desirable communities is a powerful force to drive up the home prices in these communities. So buyers of the $1,000,000 starter homes in these communities can expect an appreciation rate of doubling every 10 years which after 10 short years can result in a $1,000,000 capital gain–subject to this ADDITIONAL 3.8% tax built into Obama health care act.
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To presume that the new tax will not adversly effect real estate markets in California is illusionary,short sighted and frankly just plain stupid!! First the market acts by people coming into ownership at the lower end and moving up as the older generation moves out at the higher end. Each of these moves is accompanied by increasing income that adds to the adjusted gross income moving to higher brackets BUT restrained by this added burden.
Secondly the amount of spending by the government beyond all tax revenues coupled with the excessive monitization of the government borrowings means uncontrollable inflation is looming in the future and that will further push up home prices into the health tax area.
ALL THIS TO PAY PEOPLE NOT TO WORK.
Tell me, if you will, how many POOR people don’t have a flat screen TV, don’t have a cell phone, don’t ready have free health care, don’t have a car, don’t have a refergerator, etc., etc.
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We should be concerned not with “does it affect me” but also the precedent and if it is right or wrong. As self employeds, we have paid our own health insurance for years, which can be a strugge to do, but “free” health care will probably be the most expensive health care we ever have.
I don’t so much mind income tax, at least it means there was income. But the estate tax on our ranch if it goes back to $1 million would probably mean the end of it. Sheep do not make that much, even less now that the HSUS has manage to outlaw poisoning coyotes and they sometimes kill a third of the lamb crop, usually for sport. And why is the estate tax percentage so HIGH?
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It is apparent that the author of this opinion piece did not do her homework. Aside from the fact that she neglected to view historic appreciation values in areas with well above national averages she has not accounted for the fact that this 3.8% surtax is in addition to all of the other taxes that must be paid in association with the sale of a property. What about ordinary capital gains, city, county, and state taxes. Additionally, why does it seem to be such an affront to her that people above a certain income bracket or with gains above an arbitrary figure should have to pay a disproportionate share? I do not even come close to having to pay this surtax but ultimately it is the principle of the matter and in my opinion just plain wrong.
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This article appears only to have addressed the effect of the 3.8% Health Care Bill Tax on home sales, not the sale of other kinds of real estate, e.g. apartment buildings, mobile home parks that have held their value. No doubt seller’s of commercial/income producing property will want to cut the broker’s earned commission to offset the 3.8% tax.
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This health care tax affects not just home sale but all types real estate including sale of large income producing properties. It is problematic some sellers will want to reduce the Broker’s commission to offset their costs of the heath care tax.
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