Published: Sunday, May 06, 2012, 7:00 AM
By Karin Price Mueller/The Star-Ledger
Q. I’ve been receiving a lot of emails lately regarding the 3.8 percent real estate tax that is included in “ObamaCare.” I believe there is misinformation being circulated to scare people, especially senior citizens. Please provide details on this tax and how it will affect the sellers of homes.
A. We’re really glad you asked this question. Scare tactics is right, so let’s set the record straight.
The Patient Protection and Affordable Care Act (PPACA), commonly called ObamaCare in some circles, is somewhat in flux as the rules and regulations are only now starting to be implemented. The 3.8 percent surtax on the sale of homes will only impact higher income taxpayers starting in 2013.
Those potentially affected are married couples with income of $250,000 or more with a home sale of more than $500,000, or individuals with income of $200,000 or more and a home sale of more than $250,000.
“If you are married, you can have a gain up to $500,000, or a gain of $250,000 if single, on a primary residence where you pay no income taxes,” said Jerry Lynch, a certified financial planner with JFL Consulting in Fairfield. “Only the gain above that level would be subject to capital gains tax.”
Lynch said if it was an investment property, there would be a capital gains tax on the increase in property value.
For those who would be subject to either capital gains tax, only those with the higher incomes would have to pay the tax.
To see how the 3.8 percent surtax would be applied to a home sale in 2013, William Stratton, a certified financial planner with Nova Financial Consulting in Manasquan, offered this example.
Assume a married couple has an income of $300,000 and they sell their home for $700,000. Because current tax law exempts the first $500,000 of capital gains on the sale, the 3.8 percent surtax applies to the capital gain in excess of the $500,000 exemption, or $200,000. However in 2013, another tax law change increases the current 15 percent capital gain tax to 20 percent, Stratton said.
“This results in a total capital gain tax of 23.8 percent on the $200,000 gain for the home sale, or $47,600,” Stratton said. “If the couple’s income was less than $250,000, their capital gain tax would be 20 percent, or $40,000.”
So you can see that the 3.8 percent surtax on home sales will not affect very many people.
Also note, Lynch said, that when there is a death of a property owner, there is a step up in basis, which means that the cost basis would be on the date of the owner’s death, so your heirs wouldn’t have to pay much if any if they sold the home soon after.
Whether or not the surtax actually happens is in limbo, Stratton said. Some states have challenged the health law in the courts, and a challenge is currently being decided by the Supreme Court, which held three days of oral arguments in March. The decision is expected to come down in June.
“No one knows what the court will decide,” Stratton said. “We’ll just have to wait for the court decision to see how ObamaCare and taxes will be affected.”
—Karin Price Mueller
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Jerry Lynch is a representative of Comprehensive Capital Management, Inc., an SEC registered investment adviser through which such representative provides investment advisory services, with principal offices at 2001 Route 46, Suite 506, Parsippany, NJ 07054 (Phone 800-637-3211). Jerry Lynch may also provide commission based securities sales through Comprehensive Asset Management and Servicing, Inc., an SEC registered and FINRA member broker-dealer, with principal offices also located at 2001 Route 46, Suite 506, Parsippany, NJ 07054 (Phone 800-637-3211). JFL Consulting is a trade name, it is not a registered investment adviser. All questions should be directed to Ron Rollins, Chief Compliance Officer.