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Health Care Tax & Home Sales

By John Rebchook

It’s a myth that persists.

Rohn Goldstein, CEO of the South Metro Denver Realtor Association, says “not two days goes by” without being contacted from someone outraged that the new health care law will slap a 3.8 percent tax on selling all homes.

“I just got another one about an hour ago. Somebody sent me an email that looks like a newspaper article,” Goldstein said last week, almost seven months after President Obama signed H.R. 4872, the Health Care and Education Reconciliation Act of 2010, on March 30.

The bottom line is that while there will be a new health-care tax, it will not be levied on the vast majority of homes sold in the Denver area or across the country.
Although the new tax will impact very few home sales, it is easy to understand why there has been so much confusion.

The health-care law mandates a new 3.8 percent Medicare surtax on net investment income, which, in some cases, could include the sale of a primary residence.  However, the tax, which takes effect on Jan. 1, 2013, only applies to high-income earners – individuals making more than $200,000 annually and married couples filing jointly making more than $250,000.

And even for those individuals, it only applies to principal home sales for individual homeowners lucky enough to sell their home for more than a $250,000 profit, or $500,000 for a married couple. Clearly, most sellers will not have to worry about paying the 3.8 percent Medicare tax.

In the first nine months of the year, the median price of a Denver-area home sold was $230,000, according to Metrolist data. In other words, it was impossible for at least half of the sellers to have generated $250,000 in profit, and they would not be subject to the new tax. And at the very high end, few sellers are grappling with the tax problems of selling their homes for more than $500,000 profit in today’s tough market.

Far more common: Luxury homes sellers are trying to minimize their losses. On a national basis, the new tax is expected to impact only the top 2 percent of all families.

And in those rare cases that they exceed the profit margins, only the amount above that would be subject to the new tax. For example, if a couple sold their home for a $600,000 profit, the new health-care tax would be $3,800 on the $100,000 above the $500,000 exclusion. The $3,800 would be in addition to any other capital gain taxes on the $100,000. The first $500,000 would remain tax free, no matter what the income of the couple.

Walter Molony, spokesman for the National Association of Realtors, said that 3.8 percent tax on all real estate sales “is just a rumor,” and the NAR fields calls on the issue intermittently.
“I got several calls today,” Molony said earlier this month. “I think one of them was from Colorado. I don’t know what the source was. They come and go.”

He noted that in April, Paul Guppy, a policy analyst with the Washington Policy Institute, published an op-ed piece in the Spokesman-Review in Spokane, Wash., that claimed that “middle-income people might pay the full tax even if they are ‘rich’ for only one day,” due to the sale of their homes. The NAR immediately responded that is inaccurate.

The trade association has created what it calls “NAR Myth Busters,” which refutes the health-care tax, as well as a claim from another widely circulated email that says pending legislation in the Senate would require an energy license or retrofit before a home could be sold.

“It is a myth,” Barbara Lambert, CEO of the Denver Board of Realtors, said about the 3.8 percent Medicare tax being levied against all home sales.

But she said that her group has received few inquiries about it. “I probably could not even count on more than one hand the number of calls we’ve received on this,” Lambert said. She said that the Denver Board of Realtors made sure it got the word out before members started getting the wrong idea.

“We have put the information out a number of times and we have the NAR flyer available in our building that we pass out at our meetings,” Lambert said. “We have taken a lot of initiatives to dispel the rumor.”

For his part, Goldstein, the CEO of the SMDRA, said he keeps a link to the NAR information on his computer desktop, so he can quickly email it to people who contact him.

“I have just been using the NAR piece, its one-page flyer, and let the NAR do the talking,” because the people calling “just don’t believe me,” Goldstein said. “I think they see it on the Internet, or hear it on talk radio, and they believe this stuff. It’s not like business is not hard enough without people believing misinformation about this. I’m not making excuses for the government. They have made plenty of mistakes, but this is not one of them (as far as impacting home sales). But so many people have mentioned the issues, it is clear there is a lot of fear out there.”

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