A Sales Tax When You Sell Your Home?

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Following is an email I was forwarded from a reader. It’s from someone who calls himself Joe – maybe you’ve gotten one like it.

DID YOU OR ANYONE KNOW THIS?

REAL ESTATE SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill)
Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That’s $3,800 on a $100,000 home etc. When did this happen? It’s in the healthcare bill. Just thought you should know. So, this is “change you can believe in?”

As proof, Joe inserted this article from the Spokane Spokesman-Review dated March 28th, 2010, which says in part:

Tax on Home Sales. Imposes a 3.8 percent tax on home sales and other real estate transactions. Middle-income people must pay the full tax even if they are “rich” for only one day – the day they sell their house and buy a new one.

Then Joe goes on to say:

Under the new health care bill – did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don’t kick in until 2013 (presumably after obama’s re-election). You can thank Nancy. Harry and Barack AND your local Democrat Congressman for this one. If you sell your $400,000 home, there will be a 15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Is this Hope & Change great or what? Does this stuff makes your November and 2012 votes more important?

Oh, you weren’t aware this was in the obamacare bill? Guess what, you aren’t alone. There are more than a few members of Congress that aren’t aware of it either (result of clandestine midnight voting for huge bills they’ve never read). AND, there are a few other surprises lurking.

Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November!

You’re right about two things, Joe: People do have the right to know the truth, and there is an election in November. About everything else in your email, however, you’re wrong – and you’re either a jerk for spreading what you know to be false, or you’re a fool for believing it.

Like much propaganda that you’ll see online, on some “news” program, or from people who make their living creating controversy, this one contains a kernel of truth. Rather than explain it, however, I’ll simply show you the clarification that ran in the same newspaper that printed the false information in the first place. Here’s a cut-and-paste from the Spokane Spokesman-Review dated April 3, 2010:

In his recent guest column regarding the impact of the health care bill, Paul Guppy of the Washington Policy Center claimed that a 3.8 percent tax on all home sales was a part of the recently passed legislation. This is inaccurate and needs to be corrected. The truth about the bill is that if you sell your home for a profit above the capital gains threshold of $250,000 per individual or $500,000 per couple then you would be required to pay the additional 3.8 percent tax on any gain realized over this threshold.

Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made. This tax is aimed at so-called “high earners” – if you do not fall into that category you will not pay any extra taxes upon the sale of your home.

In short, rather than having to a pay a tax of 3.8 percent of the amount you realize on the sale of your primary residence, the truth is something quite different – that if your joint-return adjusted gross income is over $250,000, you might have to pay a tax of 3.8 percent of the amount of gain you realize over $500,000.

Do try this at home

Unlike so many things you see on TV that admonish you “Don’t try this at home!” I’d encourage you to do your own propaganda debunking. Here are the steps I took to lay waste to this particular piece of foolishness:

Step One: If you read something that seems as ridiculous as this does, don’t automatically believe it. (Had Congress passed a bill that was going to cost everyone who sells a home 3.8 percent of the proceeds, don’t you think you’d have heard about it long before now? Trust me – you’d certainly have read about it here!)

Step Two: Put the “facts” into your favorite search engine. In this case, for example, I did a search for “3.8% home sales tax.”

Step Three: Read some of the results. It took my search engine about one-third of a second to point me to several articles by actual journalists written over the last several months about this particular piece of disinformation.

If you see anything from either side that seems too silly to be true, send it along and I’ll share it. When it comes to Washington, it’s hard enough to know what to do when you have the facts. Let’s all pitch in and try not to muddy the water by spreading hysterical idiocy.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • http://www.facebook.com/profile.php?id=1342787343 Sarah Farren

    Is there no end to the layers of this rotten onion?

  • Anonymous

    Mr. Johnson, you are wonderful!! You handled this matter beautifully. You are the best! =)

  • http://www.facebook.com/people/Steve-Plyler/100001291006699 Steve Plyler

    Perhaps I fail to understand the rules of money so help me here please — us, me being old and having a home for 45 years have more than $300,000 in net equity so will I not be subject to this sales tax after 2012. However since us old folks are to benefit from the new health care bill, then I should not have any complaints, but then as Ms. Royality Nancy says, well when you read it, when we read it, you will like it so hey good things are coming to those who love change.

  • Anonymous

    “—-I still think $250K per couple is middle income, is it not?” It might be useful to know what the median income is to understand that $250K is not “middle class” income for most. However, it is true that this tax is a hit, especially for retirees who need to sell their home for whatever reason.

  • http://pulse.yahoo.com/_7OVE74KWG2FYYTMHPPOI33U3F4 Nancy

    I received this same email twice yesterday, one from a real estate broker. this is how I responded, very simialr to the write of this article:

    As per most negative emails circulating about the President this is, as usual, an overblown manipulated accumulation of half truths put together in order to stir the pot prior to election.

    See:
    http://factcheck.org/2010/04/a-38-percent-sales-tax-on-your-home/

    There will be a tax but only on a select few people that make over $200,000 per year (single person) and have a profit of over $250,000 from the sale of their permanent residence, but the tax will not apply to the first $250,000 profit. It will only apply on any profits over $250,000 for a single person or profits over $500,00 for a couple, in addition to the capital gains tax. So it won’t affect most people.

    I don’t understand why the public insists on sending these types of emails around (no offense), that are mostly a bunch of hooey. People do have the right to know the facts so please forward the link listed above.

  • http://pulse.yahoo.com/_7OVE74KWG2FYYTMHPPOI33U3F4 Nancy

    I received this email twice yesterday, one came from a real estate broker. I responded to both of them very similarly to the write of this article and said:
    ==========================================================================
    As per most negative emails circulating about the President this is, as usual, an overblown manipulated accumulation of half truths put together in order to stir the pot prior to election.

    See:
    http://factcheck.org/2010/04/a-38-percent-sales-tax-on-your-home/

    There will be a tax but only on a select few people that make over $200,000 per year (single person) and have a profit of over $250,000 from the sale of their permanent residence, but the tax will not apply to the first $250,000 profit. It will only apply on any profits over $250,000 for a single person or profits over $500,00 for a couple, in addition to the capital gains tax. So it won’t affect most people.

    I don’t understand why the public insists on sending these types of emails around (no offense), that are mostly a bunch of hooey. People do have the right to know the facts so please forward the link listed above.
    ===========================================================================
    I know I sure get tired of seeing these types of alarmist, antagonistic emails going around.

  • http://www.facebook.com/people/Steve-Plyler/100001291006699 Steve Plyler

    Thanks Nancy, you are right as people should know the facts; my beef is why is there a new tax in the Health Care Bill anyway. I do hope that the pot is stirred as change is needed meaning change as goes people desiring to serve their country and not see serving as an end all to their climb for recognition or whatever their personal motive is — our tax laws are an industry in themselves, our government cannot pay its’ bills, cannot lower or eliminate costs due to changes in needs. One only has to look at DC Schools to see government at work, average cost per student $15,000, test scores 300+ points below the national average, only 40% of students desire to go to college so Mayor Fenty has an able bodied person willing to tackle previously off limits areas of waste, add in that our President of the People says he would have his children in public schools but doesn’t, yet other Presidents of both parties have, and then we have to wonder what is the answer, more taxes hidden in Health Care Policy to be used for what? You as an individual could not run your life as such, is it not time that all our leaders be held accountable. Yes, we should know the facts, an educated elector would do wonders for perhaps bringing out of control legislators and government officials back into the fold. Why are taxes and such hidden; why not make it so the populace can see what is done, taxes are taxes, social policy is social policy, make it easy to monitor and make it public knowledge who voted for what and if these same legislators are going to benefit in the private sector upon leaving then find a way to stop the revolving door and yes there are simple ways to do it, but will not happen when those waiting to benefit upon leaving see that new controls will take them off the potential future gravy chain.

  • http://twitter.com/WatkinsLadyMT Susan Laurino

    Are you insane? There should NOT be any tax burried in a health care bill. Isn’t this a double tax if you are already paying the Cap Gain tax, is it not?! And, older people who have bought their homes eons ago, and are not rich, could very easily have $500,000 gain on their homes, especially in places like California. But the real problem is the deception of congress hiding stuff from us in these long bills.

  • Anonymous

    This tax is a subjective matter of “Is the glass half full or half empty?” Sure this tax will not affect everyone selling a home, but it will obviously effect so many people that the tax had to be HIDDEN in Obamacare. What the hell is a tax such as this doing HIDDEN in a healthcare bill? Why are there so many sneaky things HIDDEN in Obamacare that a nations healthcare has to be administered and policed by the IRS?

    • Anonymous

      I totally agree. Obamas moto is “work hard all your life, do well for yourself, and we will get you in the end”. It doesn’t matter if this tax effects you or not. It will affect alot of people. Just because you dodged the bullet this time dosen’t mean you won’t be the next target. I agree that this tax should not have been in a Healthcare bill, that no one read before the vote. Makes you wonder what other surprises are in store. The real fun starts when people start getting fined for not purchasing health care in 2014.

  • http://pulse.yahoo.com/_NZPPKF5ZDOZ46L43ZB2ASRGGDM XY

    Every country has some kind of tax at the time of the sale of the house. Either seller or buyers pay it. But 3.8% is very high. I would suggest 1..00% sales tax is fine. I think that all the state and county should consider to put the tax that are in deficit. The new york should remove the mortgage tax completely.

  • Anonymous

    First of all I don’t understand the hostility to the person asking the question; it doesn’t say much (positive?) about the (resentful?) author.

    But on to my main point. I guess it’s just fair as can be to tax (again) the earnings one used to buy one’s home. I, for example, bought a small (~1500sf) home in the Silicon Valley many years ago. Over time it did not grow into a mansion, it did not consume my neighbor’s homes and become more valuable, nor did a money tree in the back yard produce $1M profit for me to send, but rather I had to skimp on other things to pay the huge (at that time) monthly payments to buy a small home in an area close to where I worked, so as not to destroy the environment commuting long distances each day. The fact of the matter is that if I sold the home and could use all of the proceeds to buy an identical home to the one I purchased all those years ago it would indeed take all of those funds and more. So where’s my “profit”? Even though I already paid taxes on the money I used to purchase the home in the first place, I will have to pay taxes again on most of the proceeds if I sell it now (even if I buy another home, which hasn’t always been the case). So here we go, if I sell my 1,500 sf “mansion” for $1.2M I have magically created a “gain” of $1M (wow – I can buy six homes like my first one now!), but wait, I also created a taxable event to the tune of $750,000! Ouch! What are the state & federal & now obamacide taxes on this, maybe about $300,000 (don’t forget the all-consuming and un-fair alt-min tax), probably more? So yeah, I get to walk away from my $1.2M home with close to $900,000 in-hand, but if I wanted to buy it back, or one just like it, I’d have to go back to work and earn $300,000 after taxes to buy back my original $200,00 home – doesn’t get any “fairer” does it?

    I’m sure the author will have some kind words to say about me explain to you why the points I bring up are lies and fabrications, but folks, the bottom line is all of these taxes in the sale of your personal residence, are just a big taxes on inflation, and are double taxation. But since it only affects a small percentage of folks that live in very high cost areas, we’re fair game for everyone looking for a free ride or to gain political favors.

  • Anonymous

    at the end of this article, the author says:

    “In short, rather than having to a pay a tax of 3.8 percent of the amount you realize on the sale of your primary residence, the truth is something quite different – that if your joint-return adjusted gross income is over $250,000, you might have to pay a tax of 3.8 percent of the amount of gain you realize over $500,000.”

    Wow, try reading what the newspaper’s clarification actually said — that if (not just those making more than $250,000 — it applies to all persons regardless of income) you make a profit of more than $250,000 (single person) or $500,000 (married couple) when you sell your house, then you will pay an additional tax of 3.8% — this is in addition to the capital gains tax you will pay on all profit above the $250K exemption (single person) or $500K exemption (married couple).

    So, the author is mistaken on 3 points — 1) the extra tax will actually apply to anyone, even someone making $20,000 a year, as long as their profit on the sale of their home is greater than $250,000 (single person) or $500,000 (married couple). In other words, the deciding factor on if you need to pay this extra tax is the amount of profit on the sle of your home, NOT your income. 2) the author says you might have to pay a tax of 3.8% of the amount of the gain over $500,000 — wrong, you will pay capital gains taxes on the amount of profit over $250,000 (if you are a single person) and $500,000 (married couple) AND THEN the additional 3.8% tax hidden on the Obamacare Bill. 3) again, when the author says “you might have to pay a tax of 3.8% of the amount of the gain over $500,000″, they have the threshold wrong, as it is only $250,000 for a single person.

    The author states in her article after purportedly printing the “facts” — “Let’s all pitch in and try not to muddy the water by spreading hysterical idiocy.” I suggest she start by getting her own facts straight.

    So, your statement that

  • http://www.facebook.com/people/Jewly-Kimm/638235821 Jewly Kimm

    I want to ask a question and maybe someone here might know the answer… why would a husband and wife sell their house back and forth to each other year after year? Every time they do this they change the name slightly.. adding her maiden name or middle name or just going by their initials… this has been done 6+ times on this property.. What is going on here?? anyone have any ideas?
    THANK YOU!!