Saturday October 22nd 2016


Federal sales tax on homes to pay for health care? Not exactly.

Here at MAR we have received dozens of calls and emails from members that start off like this:

“I read on the Internet that a provision in the new federal health care law will put a new 3.8% sales tax on the sale of all homes.  Is that true?”

No.  It is not true.

An email has been circulating for months (and you may have even received it), but again it is false.  In fact the National Association of REALTORS® (NAR) has received so many inquiries on this subject that they have posted a “myth busters” document on about it.

Some of the emails include reference to an op-ed piece that ran in a March 2010 edition of the Spokane, Washington, Spokesman-Review that FALSELY reported that the health care bill contained a provision for a 3.8% “sales tax” or “transfer tax” on the sale of all homes.

What did the bill include?
The health care bill included a provision that imposes a new 3.8 percent 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 applies only to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or more than $250,000 for married couples.

Because capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property.  Even if the AGI limits are met, the new tax would not be applied to capital gains that result from the sale of a home, because the existing home sale capital gains exclusion rule still applies – $250,000 (individual)/$500,000 (couple). So if the gain from the sale of the primary residence is below that amount, then NO Medicare tax will have to be paid on the gain.

The new Medicare tax would apply only to a home sale gain realized in excess of the $250K/$500K that pushes the filer’s AGI over the $200K/$250K income limits. (Reported by the National Association of REALTORS®)

Some other quick points:
• The new Medicare tax will take effect January 1, 2013.
• The legislation makes no changes to the mortgage interest deduction.
As you probably know, MAR is opposed to transfer taxes, but here’s what (a non-partisan project of the Annenberg Public Policy Center of the University of Pennsylvania) had to say about this claim:

“No, with very few exceptions the first $250,000 in profit from the sale of a personal residence won’t be taxed, or the first $500,000 in the case of a married couple. The tax falls on relatively few — those with high incomes from other sources.”

Click here to read the complete explanation.