Does tax on home sales fund Obamacare?

Does tax on home sales fund Obamacare?
Date Published: February 21, 2014

Dear Sue,
A clerical person at Kaiser (trying to justify an increase of 30 percent in my co-pay since January) told me there is now a 10 percent sales tax on home sales, something she was told by a mortgage broker. I pointed out to her that 10 percent plus a 5 - 6 percent commission, plus sales costs of 5 percent would be more than many people’s equity, so the mortgage broker would not be making any loans at that rate!
But, you, Sue, as a published news contributor should be able to comment on that. I’m sure there are many who believe it, because they heard it at Kaiser.
~ Truett Neathery, Appraiser

Dear Truett,
I would be retired if I had a dollar for every time I heard that all home sales were taxed in order to fund Obamacare. It's simply not true and I will do my best to simplify this seemingly complex and confusing tax.
In March of 2010 a 3.8 percent tax was written into the health care law as a way to raise an estimated $210 billion over the next 10 years to fund Medicare and health care reform. It went into law in January of 2013. It’s often called the Medicare tax because it goes directly into the Medicare trust fund in an effort to extend its life.
A common misconception is that the tax will be imposed on all real estate transactions. It will not.
The tax will be imposed on unearned income which is income from interest, dividends, rents (less expenses) and capital gains (less losses). The new 3.8 percent tax may be imposed only for individuals with adjusted gross incomes above $200,000, or some married couples with adjusted gross incomes of more than $250,000.
The $250,000 capital gains exemption for single taxpayers and the $500,000 exemption for married couples will remain in effect.
For example; the Smiths purchased their personal residence for $300,000. They sold it for $800,000. Since their basis was $300,000 and their allowable “tax free” gain was $500,000, there would be no capital, gain to add to the Smiths adjusted gross income. Therefore, no tax.
Suppose there was a gain. Would there be a 3.8 percent tax? Consider the following example.
The Thompsons’ purchased their personal residence for $300,000. They made $200,000 in improvements. They sold their home for $1,100,000. Their gain after their $500,000 exclusion and less their selling costs was $70,000. The Thompsons’ adjusted gross income before the capital gain was $100,000. With a total AGI of $170,000 there would be no 3.8 percent tax.
Under the same scenario lets assume that the Thompsons’ sold their home for $1,200,000. Their gain would be increased by $100,000 thereby increasing their adjusted gross income to $270,000. They now have excess taxable income of $20,000. Their additional tax would be $760. which is 3.8 percent of $20,000.
When it comes to taxes of any kind consult with your tax professional, not with your health insurance administrator. It will be a matter of Good Home $$$s and Sense.
Sue Thompson is the owner of HomeTown Realtors in Auburn. She can be reached at seesue@mac.com, or at www.homedollarsandsense.com.