separating fact from fiction on the new 3.8% real estate tax that kicks in January 1, 2013

Clients worried about a new 3.8% real estate tax to start in 2013

Many of us agents have been hearing from clients worried about a new tax they hear will be imposed on real estate transactions beginning in January, to help pay for President Obama’s health care plan. There has been an enormous amount of misinformation about this tax. Even Snopes has felt compelled to debunk the many falsities surrounding this new tax.

There is in fact a new 3.8% tax starting next year and it is quite complicated, but it will affect an extremely small number of people. There’s a very good FAQ from the National Association of Realtors about the new tax.

The 3.8 tax applies only to very high earners who experience very large gains on real estate transactions

In short, to be subject to this tax, a seller must have quite a high income AND be making a handsome profit from a real estate sale. The tax will apply only to individuals with an Adjusted Gross Income of over $200,000 and married couples with an AGI over $250,000. That means the tax will apply to only the top 3% of earners in the country.
3.8% tax on sale of your home?

3.8% tax on sale of your home?



Additionally, seller must have a gain (profit) from the real estate sale of more than $250,000 if a single person or more than $500,000 if a married couple. Even then, only the amount of the gain ABOVE the $250 or $500K threshold is subject to the new 3.8% tax.

The NAR has also published a booklet that outlines a few scenarios in which the tax will be due (you will notice right away how unusual these scenarios are). Basically, you have to have a very high adjusted gross income and make a very large profit (gain) off the sale of your home to be affected by the tax.

If you feel you may be affected by this tax, you should consult a tax attorney. And you may want to try to sell this year rather than next!

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