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August
1
1
Is There a 3.8% Sales Tax on Homes in the Health Bill?
We have received many questions about a possible 3.8% sales tax which will be put on home sales beginning 2013. Ruhl&Ruhl would like to take this opportunity to do our best to clarify this situation for everyone. Understand that, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information. To answer the question, is there a 3.8% sales tax on homes in the health bill? According to the National Association of Realtors (NAR) the answer is NO. The Health Care Reform which takes place in the beginning of 2013 did create a new 3.8% tax, but it applies only to a limited amount of taxpayers. The truth is that only a tiny percentage of home sellers will pay the tax. To clarify, the 0.9% will affect clientele that the government now considers "High Income" meaning they have income over $200,000 (if married $250,000 filing jointly or $125,000 filing separately). If you don't meet this threshold you will not be subject to this tax. The tax is on "Annual Gross Income (AGI) such as; net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms presented on a Form 1040 Income Tax Return, and will be taxed on the earned income over and above $200,000/$250,000 thresholds. As for the 3.8%, this is a tax on investments for those same "High Income" people ($200,000/$250,000). It is a tax on "Unearned Income": Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active business if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. Therefore in the case of rental properties, the taxable amount would be gross rents minus all expenses (including deprecation) incurred in operating the rental property. For example, if the gross rents were $100,000 with associated expenses of $40,000, net rents would equal $60,000 ($100,000 minus $40,000) would be included in your AGI. The tax will only apply on the earnings from the sale of a personal residence if after the closing you received a large return on investment now categorizing yourself as "High Income", a $250,000 profit for an individual of $500,000 profit for a married couple. Even then it would only be a tax on the amount over and above those thresholds. We can understand all the confusion as categorizing the facts for this blog post was confusing enough. The law itself is inputted in highly technical language that only a qualified tax expert can fully grasp so please consult them for the most specific information to fit your situation. We offer this just as an explanation. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information. For the most up-to-date information on the housing market, continue checking RuhlHomes.com
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