Expensive Home Sales Will Trigger Hidden Obamacare Tax

Friday, 15 Nov 2013 11:29 AM

By Sandy Fitzgerald

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A complicated formula on high-end home sales adds an additional 3.8 percent tax to help fund Obamacare, potentially catching many home sellers by surprise.

The hidden tax is rarely discussed, New Jersey real estate broker Ron Aioso said, but it could cost high-income taxpayers thousands of dollars when they sell their homes, reports New York's WWOR-TV.

The tax affects singles with an adjusted gross income of at least $200,000 or couples with a joint income of $250,000 or more. When a home is sold, profits over the first $500,000 are subject to a capital gains tax, and starting this year, those profits also include an additional 3.8 percent tax that helps fund Obamacare.

"I think more than anything we need some education on it so people fully understand what is this 3.8%? What am I paying?" Aioso said.

The confusing tax has been a source of some speculation ever since Obamacare passed in March 2010, writes Bankrate.com's Steve McLinden.

The National Association of Realtors
posted a "mythbuster" kind of document on its website to refute the misidentification about the additional tax, said McLinden, although the bill does impose the 3.8 percent tax on high-income taxpayers.

"While this Medicare tax will be applied to households with an adjusted gross income of $200,000 or more for individuals, or $250,000 or more for married couples, it typically won't include capital gains resulting from the sale of a home, providing that home is a primary residence and not a vacation or rental home," McLinden said. "The capital gains tax exclusion rule for sales of a primary home — $250,000 for individuals and $500,000 for couples — will remain."

He explained that if the profit from the sale of the home falls below those totals, the 3.8 percent Medicare tax would not apply.

But when the gains exceed $250,000 or $500,000, that profit is added to the household's net-income total and subject to the 3.8 Medicare tax, which, McLinden says, "will fall on a relative few — typically, households with large income from other sources."

Related stories:
20 Hidden Tax Hikes in Obamacare
Obamacare Packs Crushing New Taxes

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