The 3.8% tax – myth and fact

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By Elizabeth Barnhardt
Government Affairs Director

 

Since 2010, e-mails have been forwarded by various groups referencing a “3.8% transfer tax on real estate” associated with the Health Care Reform Act of 2010. Fortunately, this is not true. However, these e-mails have circulated for the past two years and continue to raise questions among Realtors®, homebuyers and sellers, and the public.

Myth: There will be a 3.8% transfer tax on all home sales across the country starting in 2013.

Fact: There are several new taxes that will go into effect due to the health reform legislation. One of the taxes is a 3.8% income tax on capital gains. This is not a transfer tax on real estate. It will mostly affect high-wage earners and their adjusted gross income on an annual basis. If an individual or joint filer has high income based on the tax year a home sells or any other capital gain is realized, you must look at the filers’ adjusted income. Those affected are only a very narrow section of wage earners in the country. The sale of real estate could factor in the overall capital gains of an individual or joint taxpayer in a single year, but the tax is not assessed on the transfer of real estate. For a joint return, the seller must have income of more than $250,000, and for individual returns, income must be more than $200,000.

Stop: At this point, if you are concerned about whether the 3.8% capital gains tax applies to you or your client, contact a tax consultant. The new tax does not eliminate the benefits of the $250,000 individual/$500,000 joint-filer exclusion of the sale of a principal residence. Thus, only that portion of a gain above those thresholds is included in the adjusted gross income and could be subject to the tax.

The National Association of Realtors® (NAR) has produced several helpful resources to help educate Realtors® and consumer.

Top 10 Things You Should Know About the 3.8% Tax

Video with Linda Goold, NAR director of tax policy

The 3.8% Tax Real Estate Scenarios and Examples

Realtors® should familiarize themselves with the tax but should not advise their clients about the application of the tax. Realtors® can help dispel the myth, and provide clients and colleagues with the facts and correct information.