Q: There has been much talk in the papers and on the web about a “tax” on home sales starting in 2012 or 2013. The law is reported to be part of the Obama Health care bill. Is it true and how much would it be? My wife heard on the radio that the tax would be 10 percent or 15 percent. Can you give us any information?
A: As with much of what is being reported these days, there’s a tiny kernel of truth to this story, and not much else.
Here’s the story: As part of the health care bill, Congress voted to include a 3.8 percent tax on investment income over $250,000. When it comes to home sales, the first $250,000 (for individuals) or $500,000 (for married couples) would be excluded from the additional tax.
If your only investment profit is from the sale of your house, and your profit is not over the $250,000/$500,000 level, then you wouldn’t pay any additional taxes. In fact, the Joint Committee on Taxation specifically notes in its report that “Gross income does not include … excluded gain from the sale of a principal residence.
But if you had investment income of $300,000, you would pay an additional 3.8 percent tax on the last $50,000 (above $250,000) of income.
I’m not sure why some radio talk show hosts are having trouble understanding this tax, but that said, our tax code is pretty complex and when Congress sticks in extra taxes here or there, it’s bound to confuse some folks.
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