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Will my house sale be taxed to pay for health reform?

Consumer Reports News: March 31, 2011 10:03 AM

Q. I got a chain e-mail warning that because of health-care reform I’ll have to pay a 3.8 percent tax when I sell my house. True?
A. Not unless you make a lot of money and make a huge profit on your house. This alarmist e-mail has made the rounds for about a year now. But here’s the real story.

Beginning in 2013, individuals with an adjusted gross income above $200,000 a year and married couples filing jointly with one over $250,000 must pay a 3.8 percent Medicare tax on unearned income, such as dividends, interest payments, royalties, and the capital gain on the sale of a home. But the tax code excludes from capital gains taxes the first $250,000 in profit from a home sale for single filers and $500,000 for married couples filing together, so your home would have to have appreciated substantially for this tax to affect you. (That exclusion does not apply to second homes.)

Let’s say you’re a married couple looking to downsize. You won’t have to pay this tax unless your adjusted gross income exceeds $250,000 and you sell your home for at least $500,000 more than you paid for it. With the median sales price of homes hovering around $160,000, according to the National Association of Realtors, few people are likely to find themselves facing such a big housing windfall.

In fact, the Tax Foundation, a non-profit tax research organization, estimates that the new Medicare tax will affect only the top-earning 2 percent of families.

The Wall Street Journal has published a more detailed explanation of this tax and who might have to pay it.

Other watchdog sites like Snopes.com and Factcheck.org have also addressed this concern.

Got another question for me? Ask it here.

Nancy Metcalf

   

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