My New Outside Blog

Did You Know We're Facing A 3.8% Tax On The Sale Of Homes?

My lifelong friend recently sent me an email. He was rather alarmed after receivingDid you know we're facing a 3.8% tax on home sales? some disturbing news concerning an upcoming claim about taxation on the sale of homes. "Did you know we're facing a 3.8% tax on the sale of homes, condos and investment properties? Is this true? Please let me know." 

Following the federal government’s sweeping healthcare reform in 2010, there was (and apparently continues to be) considerable concern over the last-minute addition to this piece of legislation: a 3.8% tax on investment income of upper-income households. This tax is often referred to as the “Medicare Tax” as revenues from this tax are to be dedicated to the Medicare Trust Fund. This tax takes effect in 2013.

A 3.8% tax will be imposed on some investment income, which can include income from the sale of real estate. Investment income includes capital gains, dividends, interest payments, and, for those who own rental property, net rental income. However, the tax only applies to those individuals with an annual adjusted gross income of $200,000, or $250,000 for couples filing jointly. Only the investment income amount, or the excess of income over the $200,000 or $250,000 amount, will be subject to the tax, whichever is less.You would need to meet the income requirements and make a profit on the sale of your home in order to have this tax imposed.

For home sales, the existing $250,000 (for individuals) and $500,000 (for married couples) capital gain exclusion on the sale of a principal residence will not be affected. If you’re a married household that sold a house for a $500,000 gain (gain, not sale proceeds), that amount remains excluded from your income calculation. Some second home sellers with high incomes may have to pay additional capital gains tax to the extent that their Adjusted Gross Income (AGI) exceeds $250,000, but only on that portion of the gain that causes the taxpayer's AGI to exceed $250,000 and only for the realized capital gain, not the actual sales price.

Consider the following examples: A married couple sells their principal residence for $500,000 after having purchased the home for $200,000. Suppose the capital gain on the sale is $300,000. Under these circumstances there is no tax on the realized $300,000 gain from the home sale. Here’s another example: a couple with a combined salary of $325,000 sells a home for $525,000, producing a capital gain of $25,000. The 3.8 % tax on the $25,000 gain is $950.

The NATIONAL ASSOCIATION of REALTORS® has published a brochure outlining the details of the 3.8% tax that offers information, scenarios, and examples. You can view the information online or download the material for future refernce.

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 Copyright © 2011 By Mike Mayer and/or i List For Less, LLC. All Rights Reserved.

Comment balloon 1 commentMike Mayer • July 03 2011 01:16PM




This is such vital information that few seem to know about.  I am preparing a blog about this same subject.  My CPA called the change to the law to my attention early this year and suggest that I tell my clients about the tax change.  Thanks for spreading the word. 

Posted by Evelyn Kennedy, Alameda, Real Estate, Alameda, CA (Alain Pinel Realtors) about 9 years ago