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Christopher Brice's Blog

By Christopher Brice - REAL Buffalo | Agent in Buffalo, NY

The New National 3.8% Transfer Tax on Homes – The TRUTH and the MYTHS

 

Hi everyone, thanks for visiting the REAL Buffalo Blog.  Today I’d like to give you some information that has caused a lot of confusion in the real estate industry as of late.  One of my goals as a Realtor is to always keep you up to date and informed with the latest and most accurate information available in today’s market and to eliminate any fear that you may have about buying or selling property in today’s economy.  Please feel free to send me any questions you may have or suggestions for future topics to write about because all of the information here and on the website is for YOU.  I truly want it to be relevant and helpful and I want you to be glad you spent the time reading. 

 

A couple of weeks ago I received an email from a close friend about the new national 3.8% sales tax on homes. Here is what he sent:

 

“Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax?  The bulk of these new taxes don't kick in until 2013  If you sell your $400,000 home, there will be a $15,200 tax.  This bill is set to screw the retiring generation who often downsize their homes. Does this stuff make your November and 2012 vote more important?”

 

“can you look into this a bit?  i wonder if we sell this house in 4-5 years for 150K and are making 100K between us, will that put us into the 250K and up level that would have to pay this ridiculous tax?  see what you think”

 

There have been a lot of people discussing this issue lately and there has been a lot of confusion as to what this tax is, and who specifically will have to pay it… let me put your minds at ease by saying that MOST people will not have to pay this.  If you are a very high income family and have more that $250,000 in capital gains from the sale of your home, then you may get hit.  Not many, if any at all, of you will have NET capital gains of anywhere near $250,000.  (Especially here in Western New York)  Here is a detailed description the 3.8% tax issue from the Buffalo Niagara Association of Realtors:

 

In recent months numerous e-mails have circulated regarding a national transfer tax on home sales. One such e-mail was circulated regarding a "national real estate transfer tax," which would be applied to all home sales in 2011. This information is incorrect. In reality, a 3.8-percent tax would only be applied to certain sales for a small number of high income earners. Most people will not be affected by this tax at all. Despite this, no less than 5 to 10 calls and emails per week are received at the local and state REALTOR associations asking for more information on this.

According to FACTCHECK.org, most home sellers will not have to pay any such tax. The health care bill includes a provision that imposes a 3.8-percent Medicare tax for some high-income households that have “net investment income.” Revenue collected by this tax is dedicated to the Medicare hospital insurance program.

The tax applies to households with an Adjusted Gross Income (AGI) of more than $200,000 for individuals or more than $250,000 for married couples. An additional tax obligation may result from the sale of real property because capital gains are included in the definition of net investment income. 

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, since the existing home sale capital gains exclusion rule still applies - $250,000 (individual)/ $500,000 (couple). If the gain from the sale of the primary residence is below that amount, then NO Medicare tax will have to be paid. The new Medicare tax would apply only to a home sale gain realized in excess of the $250,000/$500,000 that pushes the AGI over the $200,000/$250,000 income limits.

Please keep in mind that the annual median sales price in New York State in 2009 was $199,000, and only about 6.1% of households in New York State in 2009 made more than $200,000, according to U.S. Census Bureau data. This means that the Medicare tax would likely only affect a very small percentage of New Yorkers once it goes into effect on January 1, 2013.

 

CONCLUSION:

I hope I have cleared up some of the confusion and eliminated any fear you might have had regarding the National 3.8% sales tax.  Please get in touch if you have any further questions about this or anything real estate related.  As always, please refer me to any of your friends or family that may be interested in buying or selling so that I can help them get to where they want to be.  Thank you again for taking the time to read today – all the best!

 

-Chris

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