Medicare Tax a Tax on New Home Sales is an Urban Legend!

July 03, 2012

NAHB LOGORumor has it that the 3.8 percent Medicare tax is a straight tax on new home sales. Is that true? No. According to a statement released by the National Association of Home Builders released on Friday, the tax increase is on capital income on high-income earners, and therefore, may affect some real estate investments through capital gains and rents, but it will have a “negligible impact on sellers of principal residences.”

NAHB has been tracking an email circulation falsely claiming that the healthcare reform legislation imposes a 3.8 percent sales tax on all home sales in 2013.

Revenues from the new tax will be dedicated to the Medicare Trust Fund, and the tax is an add-on to existing taxes on capital gains (on the sale of stocks, bonds, real estate, etc.) and other “unearned income” (dividends, rents and interest) for households earning more than $250,000 ($200,000 if filing a “single” return).

The tax will not have an impact on the sale of principal residences, which are subject to the existing $500,000 / $250,000 gain exclusion.

The tax will affect high-income earners who report taxable income due to capital gains, like on the sale of a second home, for example, but they will only pay increased taxes on the portion of the gain that causes the taxpayer’s AGI to exceed $250,000 – not the actual sales price.

If all of this is confusing, just know this: the “3.8 percent tax is not in any way a sales tax paid against the sales price of the home for either the home seller or home buyer. Nor is it an additional business income tax for home builders selling a new home out of inventory.”

Categories: Economy

About The Author

Amanda Winters

Read All Stories By Amanda Winters

Amanda Winters joined the mRELEVANCE team in 2007 as an account manager focusing on real estate clients. With extensive experience in the homebuilding industry, having served as the communications representative at a nonprofit that builds housing for the homeless, she is a perfect fit for the team.

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