There’s been some confusion about how the new health care bill may affect real estate. First, there is no 4% “sales tax” or “transfer tax” on the sale of a home included in the health care bill. Additionally, there is nothing in the bill that impacts the mortgage interest deduction. What was included in the health bill is a provision that imposes a new 3.8% Medicare tax for some high income households that have “net investment income”. Any revenue collected by the tax is dedicated to the Medicare hospital insurance program.
This new tax would only apply to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or more than $250,000 for married couples. Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.
The calculations of how much tax is owed are complex. However, even when the AGI limits are met, the new tax would not be applied to all capital gains that result from the sale of a home since the existing home sale capital gains exclusion rule still applies.
So if the gain from the sale of the primary residence is below $250,000 (individual)/$500,000 (couple) then no Medicare tax will have to be paid on the gain. The new Medicare tax would only apply to any home sale gain realized in excess of the $250K/$500K existing primary home exclusion that pushes the filer’s AGI over the $200K/$250K income limits.
The new Medicare tax will take effect January 1, 2013. Of course, you need to check with your own tax professional to see how the new health care reform bill can affect your bottom line.
For more information on real estate in Highlands, contact Judy Michaud at Meadows Mountain Realty 828-526-1717 or toll free 866-526-3558. Please feel free to stop by our office at 450 N. 4th Street in Highlands or at 94-1 Highway 64 West in Cashiers. Or visit us online at www.meadowsmtnrealty.com. We can also be reached by email at [email protected].