ObamaCare Tax On Homesellers
ObamaCare Tax On Homesellers
Starting January 1, 2013, there is a new tax that was part of the Obamacare health bill, that may affect large numbers of California home sellers. This is just another reason why no Realtor in their right mind should vote for president Obama’s reelection!
I understand that the National Association of Realtors has to be nonpartisan, but I sure don’t! We should all keep in mind, that starting in the first year that he was elected, the president introduced legislation to reduce the homeowners mortgage interest right-off.
Personally, if he is reelected. more pain will be put on homeowners! After talking with a CPA, and the IRS, I believe many may be overlooking one very important point that in my opinion, is critical to the discussion of this new 3.8% tax!
By the way, I’m including this fact in a new post I’m working on, tentatively entitled “Why No Realtor In Their Right Mind Should Vote For President Obama’s Re-election!
To illustrate my point on the new 3.8% ObamaCare homeowners tax, let’s say, a retired single person making about $50,000 in Social Security and retirement per year, considers it’s time to move into an assisted care living facility, and therefore sells his California home that he originally purchased 30 years ago, at $50,000, for a sales price today, that nets him $500,000. If the sale closed before the end of 2012, he would’ve had to pay just the capital gains tax on the $250,000 that was over the $250k exclusion.
A number of Realtors, I’ve spoken to, mistakenly believe this will also be the case starting in 2013! Because this sellers income is just $50,000 a year, they think he would be exempt from the Obamacare home sales tax. But, the reality of the fine print shows that because he has a $200,000 net gain in the year of sale, this is added to his $50,000 a year pension, and now, at least in the year of sale, he is in that magical $250k adjusted income and above range where the new 3.8% tax kicks in.
Bottom line, this fictional seller will get hit with a $7,600.00 new Obamacare tax bill! Do you like big government now? Now please understand that this is just my personal opinion, and naturally anyone concerned about this new tax should consult with a tax expert before making any sales decision.
ObamaCare Tax On Homesellers
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I am not really sure what you are talking about but the $250,000 net gain will be tax free under IRC 121. http://www.law.cornell.edu/uscode/text/26/121
Hi Bob, I cant help but not comment on this…How much commission does that seller pay you? On an average of 6% that would be $30,000.00. If you are so concerned about that homeowner, why not take $7,600.00 out of your commission and only make $22,800.00??
This post shows how concerned you are about your own salary and not the future of a homeowner that might need to go to assisted living. Our Medicaid system also (thank god) helps this particular homeowner. Dont put a sad story attached to one with such greed.
As you can see, I am a realtor, I happen to work with many seniors in this particular situation. The difference between you and I?? I would cut the commission if it made the difference with this homeowner. That “tax” will also help many more unfortunate elderly people with health related problems. If you are an agent working as an independent, you too someday, may need that help. Not just a $6,000.00 voucher that you can throw at some insurance company and hope they will cover you…god forbid if it is a pre-existing condition…hope you have loved ones that can care for you, because you will never be able to afford assisted living.
whether your analysis is correct or not, here is an alternate view,
http://www.nytimes.com/2012/10/14/opinion/sunday/kristof-a-possibly-fatal-mistake.html?ref=nicholasdkristof&gwh=473A38A08E5E2458883594C34D2ED8EE
and this:
http://www.nytimes.com/2012/10/18/opinion/kristof-scotts-story-and-the-election.html?ref=nicholasdkristof
10 Points To Know about the 3.8% tax from the NAR website:
1) When you add up all of your income from every
possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.
2) The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you’ll NEVER pay this tax at the time that you purchase a home or other investment property.
3) You’ll NEVER pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.
4) If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.
5) The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
6) The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.
7) In any particular year, if you have NO income from capital gains, rents, interest or dividends, you’ll NEVER pay this tax, even if you have millions of dollars of other types of income.
8) The formula that determines the amount of 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would NEVER be imposed on more than $1000.
9) It’s true that investment income from rents on an investment property could be subject to the 3.8% tax. BUT: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.
10) The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.
Dan, thanks for your comment. I’m not talking about the current $250,000 exemption. What I’m trying to bring to light here is the fact that even someone who is making substantially under the threshold for the Obama care tax will be subject to it if their net gain, after deducting the current exclusion, puts them over the threshold for this tax. Here in California. I believe there are many longtime homeowners who will be put in this predicament.
Lisa, thanks for your comment. I’m not really trying to debate the merits of Obama care. What I was trying to do was to point out that this hidden tax will affect many longtime homeowners here in California who make nowhere near the stated threshold for this tax to take effect.
Steve, nice to see your first comment here. Yes, there are lots of views on this. I really did not want to debate the law, but, just the fact that the misconception is that it’s just going to affect the wealthy.
Chris, thank you for your comment.
Gotta chime in here. This is (and if its not it should be) a hotly discussed topic in the real estate and investment communities today. Before we get into number crunching, I would first like to comment on Dawn’s post, that while I’m sure we all respect and honor his service to our country, that does not give Carte Blanche to my checkbook to pay for those who either cant afford or choose not to pay for their own health insurance. (regardless of background) In fact, I don’t see how the two are related. So that said, lets get back to the facts. Correct me if I’m wrong, but it’s my understanding that this new hidden Obamacare tax applies to the LESSER of: 1) Investment income amount, or 2) Excess of AGI over the $200,000 or $250,000 amount.
Lets apply these rules to Bob’s scenario:
AGI before capita gain: $50,000
Gain on sale of residence: $500,000
Taxable gain (added to AGI): $250,000
New AGI: $300,000
Excess of AGI over $200,000: $100,000 (Taxable amount)
Taxable gain: $250,000
Tax due: $100,000 x .038 = $3,800
So under my calculations Bob was a off on his numbers, but very on point in that this new tax will affect millions of Americans, especially those who are in or near their retirement years and would experience sizable capital gains upon the sale of their primary residence. In fact, I just met a very nice lady over the telephone this week while prospecting. She and her husband bought their 3br/2ba 1700 sq.ft. Newport Beach home back in 1971 for $38,000.00 While their assessed value is only $114,112.00 (thanks to Proposition 13) the home would likely sell for $1,060,006.00 in today’s market. Assuming her and her husband have no other income, the new hidden ObamaCare investment income tax would leave them with a taxible gain of $522,006 and additional tax due of $19,836.23. Note, this amount only represents the mandated 3.8% investment income tax under Obamacare, and does not include Federal or State taxes on long term capital gains.
Since Dawn is apparently a proponent of the collectivist viewpoint, and since “we are all in this together,” lets expand our discussion to the group as a whole. I think we can agree that the largest and most significant age group of Americans at this time would be the post WW2 generation of Baby Boomers (1946-1964). This age group is paying more taxes than any other segment of society as well. So lets look at how this law will affect those who fall into this bracket. Using the average age for first time home buyer of 30 (may have been younger back then) would suggest they bought their first home sometime in the mid 1980’s. Next lets look at the Case Shiller home price index which in 1987 was 59.33 and as of July of this year was 170.81. That represents a 287% increase. Searching the SoCal MLS for SFRs in the city of Los Angeles which have SOLD within the last 6 months provides an approx average sale price of $600,000. Reverting back to my first year of Menlo College algebra, that would give us an average initial purchase price of $209,059.23 and a capital gain of $390,941. Assuming we are talking about a single person with no other source of income, the taxable amount would be $190,941 ($390,941-200,000) and the hidden Obamacare tax would be $7,255.79.
Dawn referred to those at Factcheck.org as an authority on this subject and who wrote “The tax falls on relatively few – those with high incomes from other sources,” and “The truth is that only a tiny percentage of home sellers will pay the tax.” So far as I can tell that’s complete 100% false and misleading, and the tax is going to hit the vast majority of Baby Boomers and retirees who were smart and expeditious enough to have invested in US real estate. The biggest problem with this hidden Obamacare tax, even if the fact checkers at Factchecker.com are correct, which they are not, is that its a Rose By Any Other Name. The US Income tax started in 1913 at 1%. Where are we today?
The financial arguments are really besides the point. There are undoubtedly lots of elements in the Affordable Health Care Act that will require fine tuning – unintended consequences abound in everything. But to paraphrase the article that I referred to in my earlier post:
“… if you object to Obamacare because you don’t want to pay Scott’s medical bills, you’re a sucker. You’re already paying those bills. Because Scott wasn’t insured and didn’t get basic preventive care, he accumulated $550,000 in bills at Seattle’s Swedish Medical Center, which treated him as a charity case. We’re all paying for that.”
According to one statistic, a person dies every 20 minutes in this country because they did not have health insurance. If you find that acceptable, well it’s a free country and your entitled to your opinion. But if you think that in a civilized country that is unacceptable than your job is not to throw the baby out with the bath water but to work toward improving the implementation of laws that are on the right track, but need some tweaking.
President Obama has stated many times he favors total Gov’t run single payer. Furthermore he said that it would take at least 10 years. This law is but the first step and it designed to siphon as many as possible on to gov’t run “exchanges”.
As someone who has spent a 40 year career in the medical device industry I am certain that single payer will almost certainly stop almost all medical research. Medical companies must turn a profit. If they do not they will go out of business. So what will they do to overcome reduction in revenues which be a result of single payer?
They can’t stop marketing ( the life blood of any successful business) production costs are for the most part fixed, shipping is also fixed . The only way to significantly reduce costs is to reduce reseaserch in new products. In today’s costs it takes over 1 billion dollars to bring a new product to market.
Here are a few things to think about. The following have all been developed in the US: Pacemakers and implantable defibrillators- Heart valves – Arterial grafts- Hip and Knee implants – artifical vascular grafts – Heart lung machines- 24 hr Holters- MRI machines- Cardiac monitoring – these are just a very small number of devices that have been researched and developed here. Not in any of the countries that have universal medical coverage. There have in fact been very few innovations in medical products in those nations. WHY??? Because there is no profit incentives in them. Aids research did not happen in Africa or Europe or China or anywhere but in the US. If all The US becomes a country with Universal medical coverage almost all medical progress will suffer a tragic slowdown. I for one do not want to live in such a world.
I believe we need to stop the push to socialism taking place.
Obamacare has a lot of regulations buried in it that neither side would have voted for had they got to read it before it was voted on.
And if it was so good, they wouldn’t have issued 1231 waivers or over 4 million people It is so good all the politicians and staff etc are exempt from it.
I would like to see votes to replace it with something the people can live with. Remember, people from around the world come here for our world class medical care. Let’s not let politicians destroy it.!
Everybody needs basic care, if they want the extras – birth control etc get their wallets out.
The consensus of opinion of my surgeon friends is that they are going to work 24 / 7 until 2014, then retire or do something else.
None feel the need to work for the government and wonder who in their right mind will want to go to medical school to simply work for the government.
Looks like the idealism of youth may regret their support of utopia when they reach my age.
Are you aware of the results of a poll announced a few months ago, that 83% of the physician participants indicated they will either retire early or leave the practice of Medicine altogether if Obamacare is fully implemented. .Before this poll was announced ,this country was already projected to be short 120,000 physicians by 2020. Adding another 30million patients will make medical practice so overwhelming, that the quality of care will be dramatically reduced.
Obamacare is emblematic of a system which destroys incentives to work and the reason why over 70% of physicians oppose it!
If Obamacare is fully implemented it is likely we will end up with a two tiered medical system. One system for the “proletariat” and another for the elite. Of course, the politicians who will have foistered this on us will fall into the latter category. This was/is the situation in oppressive regimes around the globe!
“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not” …
Thomas Jefferson.
“A patriot must always be ready to defend his country against his government.”
Edward Abbey
“The only thing necessary for evil to triumph is for good men to do nothing.” – Edmund Burke (1729-97)
Hi Steve, as to your 10/20 comment, yours is certainly a valid viewpoint.
Personally, I believe we need our healthcare system overhauled, but not by a government takeover! Obamacare is so seriously flawed that the most productive thing to do is to start fresh! I’d like to see a system based on free enterprise with government oversight, but not government control!
This entire bill was passed against the majority of the citizens will, with the Democrats not only controlling the presidency but both the House and the Senate. Even with such total control, many backroom deals had to be cut, to push this massive, mostly unread bill into effect!
Why all the waivers to this law and the exclusion for federal bureaucrats and their staffs?
I’ll conclude here, with a quote that I received from a reader: Many of those who refuse, or are unable, to prove they are citizens will receive free insurance paid for by those who are forced to buy insurance because they are citizens! Here is another quote that was attributed to Ben Stein: “Fathom the hypocrisy of a government that requires every citizen to prove they are insured … but not everyone must prove they are a citizen.”
I find it unsettling that I must show my “ID” consistantly for a lot of different reasons (gladly I might add, as I am proud to be an American!), yet I will be working to bear the burden of giving free health care to someone who cannot provide documentation that they are a citizen!
From the Canadian Medical Association’s Journal… Canadians seeking the best care come to the United States of America – the nation with the finest healthcare in the world…
Newfoundland and Labrador Premier Danny Williams’ foray to the Mount Sinai Medical Center in Miami, Florida, for mitral valve surgery has engendered the predictable array of responses, including outrage from cardiac surgeons who felt he slighted their capabilities, as well as broadsides at the quality of Canada’s health care system from both sides of the border.
Yet, it is equally clear from an informal CMAJ canvas that Williams’ decision is hardly unique. Some Canadians choose to venture south for treatment, while others are sent below the 49th parallel by their physicians and provincial health systems for reasons ranging from capacity to wait times.
In fact, according to the CMAJ canvas of provincial health departments, at least 160 000 medical services or treatments were performed on Canadians outside the country over the past three years, most in the United States.
“This is my heart. It’s my health. It’s my choice,” Newfoundland and Labrador Premier Danny Williams told reporters in defending his decision to seek mitral valve surgery at the Mount Sinai Medical Center in Miami, Florida, rather than within Canada.
Britain has free health care, but it is riddled with problems.
10% of Hospitals in Britain Don’t Meet Hygiene Standards!
Heart Patients Die Because of Poor Care
The Guardian also reported that one fifth of patients that had to undergo heart bypass surgery did not receive the best care. If they had received proper care, some of the patients that died would have lived.
Woman Denied Free Health Care Because She Paid For Life Prolonging Drug
According to the Sunday Times, Linda O’Boyle paid privately for a drug that would prolong her life. The drug that O’Boyle paid for was not available through Britain’s National Health Service, or NHS. After paying for this life-extending drug, the NHS denied to pay for any of her care, and she was forced to pay out of pocket for health care until her death. The health secretary, Alan Johnson, claims that it would be unfair to let people pay for additional drugs if they could afford it.
Woman Pulls Her Own Teeth Because She Can’t Find a Dentist
The Daily Mail reports that Elizabeth Green, age 76, pulled out two of her front teeth to end her agony, after twelve dentists refused to treat her.
Lung Patients Refused Expensive Life Saving Drug
The Daily Mail reports that Britons with pulmonary hypertension are being denied life-saving drugs that could save their life. The disease can produce heart failure, but the drugs that can prevent death cost £30,000 per year. Without proper treatment, the time from diagnosis to death for these patients is around 30 months.
The Guardian reported that women in labor are being refused admittance into hospitals and are told to go somewhere else. Almost 10% of hospitals had to refuse to admit new patients on at least ten separate days in 2007.
America obviously has problems with health care as well. Health insurance is expensive, many can’t afford it, and sometimes people have to fight with insurance companies to get their bills paid. I know, however, that when I go to the hospital, they will use sterilized instruments on me. Even if my health insurance has lapsed, the emergency room will still take me. Hospitals don’t turn away pregnant patients and tell them to go elsewhere. However, if America decides that it wants socialized medicine, we might end up with some of the same problems.