ObamaCare's New Home Seller Tax

Part of ObamaCare, the Affordable Health Care Act of 2010, includes a new 3.8% tax on some home sellers. This blog outlines part of the complicated new tax law and who it may apply to.

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"So, when I sell my home, do I have to pay a new tax?" This is the question on every home sellers' mind since news of the Affordable Health Care Act of 2010 broke. 

According to the California Association of Realtors, beginning January 1, 2013, a new tax sometimes referred to as the "Medicare Tax" will take effect.  Part of the Affordable Health Care Act of 2010, includes this new 3.8 percent tax on sellers that have an adjusted gross income of more than $200,000 (for a single person), $250,000 (for couples filing jointly), and $125,000 (couples filing separately). 

Because this is a complicated tax law and will impact investor's differently, for the purpose of this blog, I will only be addressing home owners selling their principal residence with gains greater than the normal sellers' tax exemptions ($500,000 for married couples and $250,000 for individuals).   To help you understand, I am including an example from The 3.8 percent Tax Real Estate Scenarios & Examples Brochure, written by the California Association of Realtors (CAR): 

John and Mary sold their principal residence and realized a gain of $525,000. They have $325,000 Adjusted Gross Income (before adding taxable gain)."

The tax applies as follows:

     AGI Before Taxable Gain $325,000     

     Gain on Sale of Residence $525,000

     Taxable Gain (Added to AGI) $25,000 ($525,000 – $500,000)

     New AGI $350,000 ($325,000 + $25,000 taxable gain)

     Excess of AGI over $250,000 $100,000 ($350,000 – $250,000)

     Lesser Amount (Taxable) $25,000 (Taxable gain)

    Tax Due $950 ($25,000 x 0.038)

NOTE:  If John and Mary had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax would depend on the other components of their $325,000 AGI.

With this new tax, I recommend sellers talk to their accountants to verify their liabilities, because each home seller has different circumstances that may impact their tax rates when selling their home.  

Written by Virginia Hall

                ABR, CRS, e-Pro, GRI, SFR

                Coldwell Banker Residential Brokerage



                Direct (619)258-8585

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Virginia Hall August 28, 2012 at 03:34 AM
Thanks for sharing your source. My source was the California Association of Realtors.
Ron Selkovitch August 28, 2012 at 10:48 AM
TIL, perhaps you can explain your reasoning. how do you have a gain but owe more than the property is worth. Anyhow don't worry. If Romney wins and implements Ryans plan, then Romney will only have to pay .82% taxes. That should make you feel great
Ron Selkovitch August 28, 2012 at 10:56 AM
Virginia, your source is correct, but Snopes addresses the false or misleading rumors about an issue.
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